A key principle of Microsoft’s upcoming reorganization

Posted on July 9, 2013 by halberenson

A Microsoft reorganization does seem to be imminent.  I don’t know how much weight to put on the rumors, but if there is any truth to them I think I’m picking up on a secondary theme to the “Devices and Services” pivot of the organizational structure.  That’s a rethink of organizing the company around businesses with independent Presidents.

I provided some history of the current organizational model and thinking in a blog entry back on June 3.  The key here is that Microsoft’s last major reorganization was intended to create separate business units with leaders who would be given great independence in running those businesses.  Basically the President of a business would negotiate a set of goals with Steve and then be largely free to operate the business without central interference.  Essentially, Revenue and Contribution Margin commitments.  Overall strategy agreement.  And then a bunch of other operational metrics (e.g., customer satisfaction) the company was trying to address.  But after that, in theory, the President runs the business.

Microsoft’s current organizational model was inspired by organizations such as General Electric.  GE’s Housewares and Jet Engine businesses have nothing to do with one another and are different in every way imaginable.  Thus pushing as much leadership to the business unit heads as possible makes perfect sense.  Berkshire Hathaway functions in even a more pure conglomerate model, with a tiny corporate office that focuses on capital allocation.  Warren Buffet doesn’t try to be an operational manager at all.  He buys businesses he likes and makes sure they have leaders he trusts.  Then lets the leaders run the businesses.  The model has obviously worked well for both companies over a long period of time.

The problem for Microsoft is that it is neither a single business nor a conglomerate like GE or Berkshire Hathaway.  Microsoft is a collection of mutually reinforcing businesses.  Thus creating business units with leaders who were notionally given independence never worked right.  On one hand they never had the level of independence that the organizing principle called for.  On the other hand, the independence they had severely damaged the reality that they are mutually reinforcing.

Why, up until recently, was the problem of Microsoft products reflecting their organizational structure becoming worse?  Well, if you run them as independent businesses then their leaders are tasked with maximizing the success of their business, not the company as a whole.

In terms of independence Microsoft Presidents had a lot, but it never worked out to the level of something like GE.  For example, business units don’t have their own sales forces at Microsoft.  Each business unit President has to negotiate with Kevin Turner for sales support.  At one point STB wanted to get more aggressive in going after high-end Enterprise sales but that particular proposal was derailed by KT.   When Bill Gates was CSA he attempted to apply strategic technical coordination across the independent business units.  Bill succeeded, to varying degrees, via his moral authority.  But shortly after he left the role the institutions he’d created to carry on were eliminated under pressure from the Presidents.

With the advent of Windows 8 Steve started to apply more pressure on the business units to cooperate and they all did work in support of Windows 8.  At the same time you can still see the conflicting priorities in what they produced, with Office (for example) having mostly failed to jump on the Metro bandwagon.  Subsequently the Senior Leadership Team took on Ben Franklin’s “We must all hang together, or assuredly we shall all hang separately” attitude.  So Microsoft’s key organizing principles is now in conflict with the way its senior leadership is trying to operate.  And that is something that should be corrected in this reorganization.

There are many hints in the reorganization rumors that Microsoft will indeed eliminate the structure of having independent business units led by Presidents (and they may or may not use that title for the leaders of new units).  The rumors suggest that the leaders of the new units will not have their own CFOs.  The CFOs, if they even retain that title, will instead report up through the finance organization.  Something I speculated on in the June 3rd posting, that the financial reporting structure will change, is also now being rumored.  Yet it doesn’t seem to me that the organization structure being suggested matches up with a reporting structure that will make sense to investors.  And both the leaders being suggested, and the terms being used to describe those leaders’ roles, do not suggest they meet the description of a President.  Hints might also be found in what happened after Steven Sinofsky left Microsoft, with his responsibilities divided between a business executive and an engineering executive who both report to Steve.

What the tea leaves suggest is that Microsoft is going to broadly split engineering and business responsibilities.  Most of what we have heard about until now are the names of the engineering executives and their potential new roles.  For example, Terry Myerson would become head of Windows and Windows Phone Engineering.  With the departure of Don Mattrick, Julie Larson-Green now seems slated to become head of Devices Engineering.  There are two clues here.  One of course is that if Mattrick was picking up more engineering responsibilities but losing his business ownership that might have made staying at Microsoft less interesting.  The other is that while many would question if Terry and Julie are ready to be President of such large business ventures, their readiness to run the engineering portion of those areas is far more proven.  From a people perspective it’s the right next step for both of them.

Talk about current Online Services President Qi Liu also use the word Engineering in describing his new role.  Oddly, only the references to Satya Nadella continue to suggest ownership of a business unit.  But that may just be a reporting anomaly.

More recently the rumors have suggested new business roles for Tony Bates and Tami Reller.  So we could be looking at a return to Microsoft’s 1990s principles in which engineering units run by Group Vice Presidents reporting to the CEO (or, earlier, Senior Vice Presidents reporting to an Executive VP) had significant but not complete business ownership.  Or we could be looking at something even more dramatic, a complete separation of business ownership from engineering.  For example, it isn’t clear in the new structure if Product Marketing responsibilities remain with the engineering leaders (as in the 1990s) or if those move into an alternate (and somewhat) parallel structure.

If I had to guess, and it truly is a guess, Steve has decided that the way to put the “mutually reinforcing” notion back at the core of Microsoft is by centralizing the business responsibilities to an extent never before (or at least not in the last 20 years) tried.  I have mixed feeling about this, which I’ll write about should it come to pass.  But while it’s fun to watch my former colleagues’, and in some cases friends’, names being thrown around in new (apparently engineering) roles the real action is in the areas that have so far gone underreported.

Who are Microsoft’s new business leaders and what is the new business structure?

Posted in Computer and Internet, Microsoft | Tagged , , | 3 Comments

Don Mattrick departs Microsoft

Posted on July 1, 2013 by halberenson

Microsoft has lost another senior executive, and a number of people have asked me if this is good or bad for Microsoft.  I’ll render judgment at the end of this piece.

I never interacted with Don Mattrick though no doubt we were in a few meetings together.  Most of my interactions with Xbox leadership were with the old timers who created the original Xbox and Xbox 360 and later those who ran E&D.  So I’m not writing from personal experience here, but rather from observation.

Mattrick joined Microsoft in mid-2007 with the Xbox 360 already in-market.  He was a game guy, not a game console or PC hardware guy, and apparently Microsoft wanted to bring more game industry expertise into E&D leadership.  With the departure of Robbie Bach and J Allard, as well as other early Xbox leaders, Mattrick became the clear head honcho for Entertainment.

It’s difficult to argue with Mattrick’s record at Microsoft, the recent Xbox One DRM fiasco aside.  The Xbox and Xbox Live business grew dramatically.  The Kinect was introduced to record-setting success.  And moreover, the day one strategy of making the Xbox the center of the overall living room entertainment experience (aka, the third screen) went from lip service to reality.  Moreover, Mattrick brought a lot of senior talent from other parts of Microsoft into IEB over the last three years.  Most notably Dave Cutler,  but overall there is a lot of talent in that organization.

Of course the interesting thing about all the Microsoft old-timers who have joined IEB in the last three or so years is that they are not gaming guys.  They are computer systems software people.  Many of those who built Windows, .NET, Live, and other of Microsoft’s traditional platforms and services now reside in IEB.  And you start to see the result in the Xbox One.  It is a general purpose home entertainment platform, with specialized support for gaming.

So Mattrick the game guy’s legacy at Microsoft will be that he successfully moved the Xbox business from a game console that could do some other home entertainment to a home entertainment device that also does gaming.  See the irony?  I’m guessing it is exactly that irony that lead to Mattrick joining Zynga.  At Microsoft, “Games and Game Consoles” is no longer a top-level job.  So if you are a game guy, and want to stay a game guy, you either need to take a smaller job or look elsewhere.  And that is at least part of what I suspect happened here.

One of the rumors I saw about Microsoft’s upcoming reorg had Mattrick running a broader Devices organization.  That had me scratching my head a bit because it is so far from the theme of his overall career.  Sure, thanks to the Xbox he has more experience running a systems hardware business than any other senior Microsoft executive.  But game consoles are a specialized business, and Mattrick has no experience in the broader PC, server, or other device areas that Microsoft would want to venture into.  Not even on the software side.  He’s a Game Guy.  Microsoft might have been willing to give him a broader role, but that doesn’t mean it was an ideal fit from either the company or Mattrick’s perspective.

So why exactly did Mattrick leave for Zynga?  I don’t really know, other than that obviously he found the opportunity to be CEO of a game company more interesting than whatever future he saw for himself at Microsoft.  Kara Swisher, who broke the story of Don’s departure,  has reported that Don’s departure has nothing to do with Microsoft’s upcoming reorg and I have no reason to question her insight.  And other reports have him talking to Zynga for months.  But reorg or not, Mattrick was weighing his future opportunity at Microsoft against a return to his roots and his roots won.

So is Mattrick’s departure good or bad for Microsoft?  I’m going to give it a Neutral.  With Steve Ballmer apparently about to reorganize the entire company Mattrick’s departure may be the least disruptive change that hits the Interactive Entertainment Business in coming weeks.  And with the Xbox One firmly in the camp of being a broad Home Entertainment platform, losing the “game guy” is not as painful as it would have been just a few years ago.

 

Posted in Computer and Internet, Home Entertainment, Microsoft | Tagged , , , | 7 Comments

The NSA and Six Degrees of Separation

Posted on June 7, 2013 by halberenson

Recent revelations of how extensive the U.S. National Security Agency (NSA) data collection efforts are concern me in many ways, but for this posting I just want to address one.  The Six Degrees of Separation  Terrorism Problem.  What the Six Degrees theory states is that everyone is just six steps away from everyone else, on the planet.  That is, I could introduce you to someone who could introduce you to someone, etc.  and within five introductions you could connect with anyone on the planet.  Guess what, that means every one of us is within five introductions of being introduced to a terrorist.  In reality, most of us are probably much closer.

When we were teenagers I discovered that one of my cousins was (briefly) a member of the Jewish Defense League (JDL) and an acquaintance of founder Meir Kahane.  Kahane would later emigrate to Israel and form Kach, which the Israelis banned as a terrorist organization.  The FBI also implicated the JDL in acts of domestic terrorism.  And they placed Kahane under extensive surveillance.  I never had anything to do with the JDL nor met Kahane, but think about it: I was one introduction away from the leader of a terrorist organization.  And my cousin probably has some interesting notes in an FBI file.

How about another early teenage experience?  A friend and I were wandering around Manhattan on one of our periodic photography expeditions when we got the bright idea to see if there was anything worth photographing in New Jersey.  So we hopped on a PATH train and picked a stop at random, which turned out to be Jersey City.  We walked out of the train station and into some kind of rally.  A “White Power” rally as it turned out.  We started to get some great pictures of guys in KKK-like robes up on the stage when we were accosted by a group of African-American teenagers.  Seems we’d been mistaken for participants in the rally and a small racial incident began to unfold.  Thanks to Monty Pythonesque “active fleeing” we managed to get out of Dodge before becoming the lead story on the six o’clock news.  But to the point of this blog post, we no doubt show up in photographs taken by law enforcement officers monitoring the event.  In today’s world of facial recognition software if this happened now I’m sure my presence at the event would be noted in an FBI file.  And just for getting off a train at the wrong place and time.

Another cousin married a Persian Jew whose family came in from Turkey and Israel for the wedding.  One of my brothers had a Top Secret security clearance at the time and not only had to notify his employer’s security office that he was going to an event where foreign nationals would be present but had to be debriefed afterwards about his interactions with those foreign nationals.  I can only imagine that a pattern of international calling and traveling amongst Persians (aka, Iranians, even if Jewish) in the U.S., Turkey, Israel, and who knows what other countries might raise eyebrows in the post-9/11 era.

Which takes me away from ancient history to today.  Being in high-tech I’ve had numerous Muslim co-workers, a number of whom I would classify as friends.  I hold them in high regard both as colleagues and human beings and would never think of them as being associated with terrorism.  So what are the odds that a former co-worker who is Palestinian is within two or three degrees of separation from a member of what the U.S. classifies as a terrorist organization?  According to LinkedIn I have 9 million people within three degrees of separation just amongst its membership.  The worldwide population of Palestinians is about 11 million, so it is not inconceivable for any Palestinian to be within three degrees (or two introductions) of every other Palestinian.  That doesn’t mean a particular individual is a terrorist or sympathizes with a terrorist organization or supports terrorism in any way.  It does mean the odds that they’ll eventually communicate, however innocently, with someone with a terrorist (e.g., Hamas) affiliation is surprisingly high.

Your son’s college roommate posts Happy Birthday on his Facebook wall and you and every connection your son has inherits whatever baggage the college roommate brings to the party.  You get a phone call from a business colleague in Yemen and your social network and his are not only linked,  but the very fact that the call came from Yemen likely triggers intensive analysis algorithms.  Call a business colleague in Afghanistan the next day and you may have an entire data center devoted to analyzing your communications.  Now send an Egyptian friend email to congratulate him on his daughter’s marriage and NSA computers probably trigger an alert to Jack Bauer.

Borrowing from a popular saying in the fight against sexually transmitted diseases (when you have sex with someone you are having sex with every partner they’ve ever had),  when you communicate with someone you are communicating with everyone they’ve ever communicated with.  And the Six Degrees of Separation theory strongly suggests that someone in your broader communications network does in fact have a terrorist connection.

Senator Lindsey Graham made some very naïve remarks about the current NSA communication monitoring scandal: “I don’t think you’re talking to the terrorists. I know you’re not. I know I’m not. So we don’t have anything to worry about.”  Wrong Senator.  How do you know when you are talking to a constituent that you aren’t talking to a terrorist?  Or that they are talking to a relative, friend, or business associate that has in turn communicated with someone having terrorist ties?  You don’t.  Or that one of your staff members hasn’t been in that situation?  And that means the NSA is looking at your communications and for some period of time, however brief, you or members of your staff come under suspicion.

Now I’m going to give NSA some credit here.  If everyone is at some point just a phone call or Tweet away from a terrorist than that is not particularly useful to know.  Unless you want to accuse everyone and take the (in)appropriate action.  Stalin did it.  Hitler did it.  Most dictators do it.  And let’s not forget our own episode with McCarthyism.  The NSA is obviously doing a lot of work, and we’ll presume good work, creating algorithms that weed out all the incidental contacts and figure out what is truly of interest for further investigation.  But that still leaves immense room for abuse and error, which I’ll address in a part II.

Posted in Computer and Internet, Privacy | Tagged , , , | 5 Comments

Microsoft Reorganization Rumors

Posted on June 3, 2013 by halberenson

It’s a big week for Microsoft news due to TechEd and Computex, but also just the general news flow.  Microsoft CIO Tony Scott has left the company.  From an external perspective this has little obvious impact and I’m not going to spend any time on it.  What I wanted to cover today were the exploding rumors of a major reorg within Microsoft.

Other than some reactionary changes as a result of people leaving the company, Microsoft hasn’t done a major reorg in quite a while.  Back in the old days the reorgs were pretty much annual events, with (at least some) employees sitting on pins and needles each spring waiting for details to be finalized.  The reorgs would be delayed for weeks as Bill tried to get senior executives comfortable with new positions.  I recall one reorg that was delayed almost indefinitely as Bill tried to convince one senior executive (who reads this blog occasionally) to take on a new role.  He chose to leave the company instead.  Reorgs are painful things.

Some years back Steve Ballmer reorganized the product groups around user segments.  Server and Tools Business is the segment responsible for products sold to IT for IT use.  Microsoft Business Division was responsible for products sold to Businesses for Business use (with IT as an operational and purchasing intermediary rather than the primary user).  Windows and Windows Live was the division that creates products for end-user client computers.  Etc.  Financially Microsoft still rolls up into this segmentation.

As senior executives left Microsoft over the years the mapping of the original segmentation to the management structure has broken down, with Steve taking on more and more direct reports.  E&D split into IEB and Windows Phone as well as spinning pieces into other organizations (e.g., Windows Embedded went to STB, presumably because it is in the “sold to IT for IT use” category).  MBD split into Office and Microsoft Business Solutions.  And of course with the departure of Steven Sinofsky the Windows Division really split into two leaders reporting to Steve, leaving him effectively the President of Windows.

The use of the title President is somewhat tied to the alignment of the financial reporting segment and organization structures that had originally been put in place.  Steve could delegate responsibility for a segment to a President because that leader had direct control of the organization that delivered products to the segment.  A previous attempt to have a single virtual leader for the Server and Tools segment had failed, demonstrating the need for the segment owner to have actual control of the products.  Now that the segments and organization structure often have no single leader Steve has to fulfill that role.  I have always expected that it was only a matter of time before he decided to collapse the product groups back in to a more rational structure.  And it seems like that time has arrived.

What is being reported is that the new focus on Devices and Services is behind the change.  I don’t know if that is really the driver, or if it is just one of the pivot points used in thinking the reorganization through.  For example the structure outlined in the Bloomberg  article doesn’t seem like a pure split Devices and Services split but rather more of a cleanup effort.  And let me be clear, the rest of this is pure speculation.

What, for example, might Satya own for “Enterprise” that he doesn’t already have in his portfolio?  From a customer segment perspective Dynamics might be one possibility.  Think about how Oracle combines its Apps and Infrastructure business to solve enterprise customer problems.  And, recall that Satya once lead Microsoft Business Solutions.  But the more interesting question is where in the new structure does Office land?  Does it split into Office Servers as part of Enterprise and Office Clients as part of a Qi-lead applications and services business?  Keep in mind that those two parts of Office were managed quite independently for a long time, so such a split might be a lot less messy than it seems.  Or does Office report fully to Satya leaving Qi to focus on consumer applications and services?

There are some other things that seem more obvious to me.  What used to be called Windows Live was originally part of Online Services before moving under the Windows business.  But recall that at the time Windows, Online Services, and STB shared a President (Kevin Johnson).   With those “Live” services now ubiquitous across Microsoft’s platforms (Windows, Windows Phone, and Xbox) as well as having non-MS OS client support, it makes sense to move them to Qi.  Likewise for Xbox Live.  And if you want to round things out then shouldn’t Xbox Music and Xbox Video also live in an Applications and Services business?

The rumor of having Don Mattrick running the device business are interesting given his background is entirely in gaming.  However, the Xbox is also Microsoft’s most successful device to date making Don the current Microsoft senior executive with the most hardware experience.  I presume that he’d retain the console while picking up Surface and other as yet undisclosed products. And, of course, if the rumors of a Microsoft acquisition of Nook Media LLC are true then it seems like Nook devices would live in this business.

And where does Tony Bates fit into all of this?  So far we have rumors that he has a major role to play, but then when you play musical chairs you don’t see the chair he would occupy.

Having co-leaders of the OS business with Julie and Terry seems like a cop-out.  It’s probably because Steve actually wants to retain more direct oversight of those efforts for the time being.  At some point though he needs to name a President to run that.

So how about the losers in all of this?  That would seem to be Kirill and, particularly Kurt.  Kirill has the smallest business to have someone with the title President, much smaller than many Microsoft products.  So it makes sense to move MBS (back) into another organization.  I don’t know if Kirill would retain the title (so you had a President reporting to a President) or become a CVP.  On the other hand Kurt runs the biggest business at Microsoft.   So either he isn’t being mentioned because there are no changes to Office, he is planning to leave and that actually helped trigger the reorg, he was ok with a different and (perhaps) less prominent role, or he’s the real loser in the game of musical chairs.

Of course Microsoft could end up with a very different structure, different details than what I speculate, more minor tweaks, or even just leave things as they are.  We won’t really know until they announce something.

Let me close with one more question/comment.  Will Microsoft change the financial reporting structure?  If Microsoft is really in the Devices and Services business than that is a more telling sign than the org structure.  Of course, I’d hope that the new org structure somehow mapped to the financial reporting structure.  Not that it has to.

Posted in Microsoft | Tagged , | 9 Comments

What if Microsoft got NOOKed?

Posted on May 27, 2013 by halberenson

Earlier this month rumors circulated that Microsoft was looking at purchasing the Nook business (in which it already owns a stake) from Barnes and Noble.  I wrote about the deal a year ago, so you might want to review that piece for more background information.  While we haven’t heard anything since the initial rumor I did want to comment on what might be the motivation of the two parties, and on some of the commentary that occurred when the rumor surfaced.

Barnes and Noble (BN) has no business being in the Tablet hardware business.  Let me explain.  BN’s primary competitor in Tablets is Amazon.  Amazon sells Tablets as loss leaders (or at best, break-even) to support sales of media where they have an extensive and well-loved ecosystem.  Of course they have the e-books that made the Kindle so successful.  But they also have reasonably well-established video and music offerings.  And, of course, as the world’s largest electronic mall they have shopping.  The Kindle Fire exists to be the world’s best front-end to all those services.  The only established media offering that BN has is e-books.  So BN has to price its Tablets competitively with Amazon, but lacks the revenue sources that support doing so.

One can argue that BN must compete with the Kindle Fire and that the correct path is to continue to build out its offerings in other media in order to do so.  The problem is that this takes deep pockets and quite a bit of time.  BN has neither.  One quick solution would be to buy leadership in streaming video, for example.  Netflix has a market cap of about $13 Billion.  BN?  About $1.3 Billion.  So buying leadership isn’t happening.  Even buying a smaller but relevant player (like Hulu) is likely out of their reach.  It’s almost impossible to imagine BN continuing to compete in Tablets since they have no realistic path to profitability.

Of course BN does have an option.  With Amazon “in it to win it” in Tablets and Apple (anti-trust issues aside) making progress in adding e-books to its own infrastructure the question for other Tablet-makers is “What about us?”.  BN, as the only player with an e-book offering comparable to Amazon’s, can and should focus on being an arms merchant to the non-Amazon non-Apple Tablet makers.  Microsoft’s original investment in Nook Media LLC (NM) is an example of a non-Amazon non-Apple player looking to protect it from relying on major competitors for e-book experiences and infrastructure.

So why might Microsoft seek to acquire full control over the Nook?  Well, first of all even assuming that “where there’s smoke there’s fire” and that Microsoft is looking to acquire something from BN we don’t know exactly what they are looking to acquire.  Is it just the hardware business?  Is it the entire e-book hardware, software, and media service offering?  Does it include the college bookstores?  Etc.  In other words, it might not match the exact boundaries of the NM subsidiary that BN created to take the original Microsoft investment.

You can find some of my thoughts in last November’s speculation on a Microsoft 7″ Tablet.  That piece, while dated, talks about the need for Microsoft to offer more content-consumption oriented Tablets.  And to do so at more competitive price points.  In other words, to produce a competitor to the Kindle Fire family.  So Microsoft, with its deep pockets and Xbox Video and Music services, must and almost certainly will compete in exactly the space that BN is being forced to abandon.

What Microsoft needs is e-books and, more importantly, to be part of a family that offers a clear and desirable growth path from pure e-readers.  While the original minority investment should, in theory, offer all of this the reality is that such joint ventures frequently fail to deliver the goods.  And with the majority owner of the joint venture under financial pressure, it seems even more likely that Microsoft would have trouble getting what it wants when it wants it without gaining full (or at least majority) control.  So for Microsoft the natural progression of things would be to finish the job.

At this point let me interject one diversion.  I have heard the real crown in the jewel here is BN’s college book business.  I do not discount that this was, or could be, the real reason Microsoft got into bed with BN.  At the very least it could have been the tipping point in any “build vs. buy” analysis.  This makes any speculation about a deal much more complicated, so I will ignore it for now.

What I wonder about is what is left for BN should Microsoft acquire Nook Media LLC?  Is it just a book retailer?  Is that a sustainable business, even for a company that is essentially the last chain standing?  Could something in a deal make this a palatable option for BN?

BN has about 1300 retail outlets split almost evenly between its traditional stores and college bookstores.  I walked into my local BN yesterday and found that right in the center is a large “store within a store” for the Nook.  What happens to that space if Microsoft acquires the Nook business?  Does BN put back in the bookshelves and expand the inventory in each store?  Could the future of that space be the key to a deal?

Economics must force BN to reduce real-estate and inventory costs associated with the sale of physical books.  Meanwhile, Microsoft is struggling with the limited reach of its small set of retail stores.  One part of a deal, perhaps even the key to the deal, could be to turn the existing Nook retail space in BN stores into specialty Microsoft Stores.  They could either be things that Microsoft operated under real-estate leases with BN, or that BN itself operated.  In the latter case they would perhaps be part of a strategy that BN pursued to add consumer electronics retailing to the book business.  BN as a Best Buy competitor is either the dumbest or smartest thing I’ve ever suggested!

Microsoft could quickly grow its retail presence to 700 to 1400 locations as part of a deal with BN.  That is mind-blowing and, yes, highly speculative.  But it makes sense.  Microsoft goes from distribution laggard to leader (at least in the U.S.).  BN gets cost reduction on its physical store real-estate costs, or establishes a new retail business to supplement physical book selling.  Win-win, at least on paper.  In reality I have trouble seeing Microsoft profitably operating that many domestic locations or BN changing its stripes.  But the bricks and mortar world is where the interests of these two parties in doing a deal diverge, or converge.

Some have speculated that BN selling Nook to Microsoft is good for Apple, Amazon, and Google but I really don’t see that.  BN as an independent but toothless Tablet competitor is the best scenario for Apple and Amazon, and gives Google leverage while it grows Play adoption for e-books.  BN as a non-competing supplier of e-reader software is the best case scenario for Google Android ecosystem players such as Samsung who need a name brand alternative to the Kindle reader software.  Put all of this under Microsoft’s control and Apple and Amazon face a deep-pocketed competitor who is putting the final touches on its ability to make their lives miserable.   And while Microsoft would continue to support non-Microsoft platforms, as it has with Skype, Google and the Android ecosystem would lose leverage and partnering opportunities.

I wouldn’t be surprised to see Microsoft either acquire or take a majority stake in Nook Media LLC.  Nor would I be surprised if the rumor was no more than that.  I also wouldn’t be surprised if any deal was for a subset of NM.  Whatever the structural outcome what interests me is how Nook, Surface, Microsoft’s retail ambitions, and BN’s survival all come together.  Something substantial is likely to happen in this space later this year.  We’ll just have to wait to see how it plays out.

Posted in Computer and Internet, Google, Microsoft, Mobile | Tagged , , , | 4 Comments

The Windows Phone App Problem

Posted on May 13, 2013 by halberenson

Last week the situation with Windows Phone Apps was once again in the news as the Marketplace/Store reached 145,000 apps.  On one hand we had many critics pointing out that the rate of growth for Windows Phone has slowed considerably.  On the other hand we had defenders pointing out that Microsoft has shifted its efforts towards having better app quality over a focus on rapid growth of the number of apps.  Defenders also point out that after a certain point quantity no longer matters as you’ll find all the apps you need in the store.  At 100,000 apps Apple’s App Store was considered saturated, yet today Microsoft’s 145,000 apps is considered so far from adequate that it is the justification for recommendations not to purchase a Windows Phone.

I’ve put my spin on this topic a number of times over the years, and this time I wanted to take a (mostly) objective look at the problem.  Microsoft tries to address the criticism by pointing out how many of the “Top 25” apps are indeed available on Windows Phone.  They do that based on an overall list of downloads on other platforms.  Or they’ve focused on certain areas, like gaming and social networking.  And by focusing on trying to attract a few high profile apps.  I wanted to take a different spin.  I’m going to take a handful of categories that are important to me, and I believe many others, and see how well represented apps are in the Windows Phone Store.

Let’s start with Banking and ask a very simple question.  Of the Top-10 banks in the U.S. how many have apps available for Windows Phone?  Three.  And one of those is just for its credit cards.  Want to guess how many of those banks have apps in the Apple App Store?  All ten.

You might think this is just a banking problem, but it is anything in finance.  Windows Phone has apps for Zero of the Top-10 Mutual Fund companies.  Seven of those companies provide apps for the iPhone.  How about if you just want to do research on mutual funds?  Sorry, you’ll need an iPhone, Android Phone, or Blackberry for that.

Moving on, how many of the Top-10 U.S. Airlines have apps for Windows Phone?  Three.  For the iPhone it is eight.

Now the truth is I was going to do this for several more categories but it is too depressing for me to continue.  If you want to understand the situation with Windows Phone yourself step away from a few missing headline apps, and from the nice set of headline apps that have recently been announced on Windows Phone.  Step away from the “Is 145,000 apps enough?” question.  Instead pick a category of apps that are important and find a “Top 10” list for those.  If it’s a real world category then pick the Top 10 businesses in the real world (as opposed to lists of what are downloaded on other platforms), and see how many of those have official apps in each of the app stores.  Try to find categories where Windows Phone has a passing grade.  Try.

Note: I did this comparison quickly so counts might be +/- 1 as additional search terms lead to discovery of additional apps.  But this won’t change the situation at all.

Posted in Computer and Internet, Microsoft, Mobile, Windows Phone | Tagged , , | 74 Comments

“Win Reviews”

Posted on April 23, 2013 by halberenson

Another review of a Microsoft product (or in this case service), another black eye.  The most recent controversy is over Bing, but let’s face it, a lot of the problem with Windows 8 is how the preponderance of reviews didn’t like how its new user experience played out on traditional desktop/notebook devices.  That negativity, echoed by the Power User class that the reviewers are part of, spread to the general public and became a major drag on acceptance of Windows 8.  People who have never seen nor used Windows 8 walk into computer stores asking for Windows 7 machines.  A computer store I was in yesterday keeps a supply of a third-party Start Menu add-on in-stock and offers to sell it to all buyers with new PCs.  “Does it make Windows 8 work just like Windows 7?” asked the buyer.  “Yes” said the sales rep.  How could Microsoft have avoided this?  Let’s time travel back to the pre-Internet days for a solution.

When I joined Microsoft in early 1994 I discovered what I then considered a somewhat odd way of driving product development.  I would sit in Bill’s reviews of product plans and many would have as a key goal of the release “Win Reviews”.  As an enterprise guy this was odd because at the time reviews played a minimal role in that space, but for end-user products reviews were critical.  Also, whereas enterprise software teams could talk directly to a high percentage of their (existing or potential) customers (CIOs, VPs of Operations or Development, DBAs, etc.) reviewers became a key proxy for end-users.

Recall that we are talking (effectively) pre-Internet.  The dominant force in communicating information about computer hardware and software were a handful of print magazines.  As the PC era reached its pre-Internet peak these publications had grown to the size of small (and sometimes not so small) phone books.  And they were filled with reviews of new products and comparisons of competing products.  Trying to decide between Microsoft Word, WordPerfect, and Lotus Ami Pro?  Or Windows vs. OS/2?Articles in these magazines were going to weigh heavily in your decision process.

The major publications took this one step further by getting into a “lab war”, building out hardware labs and hiring technical staff so they could dig more deeply into products.  Even enterprise-oriented products like SQL Server found ourselves fighting lab wars in a couple of publications.  But whereas for SQL Server this was mostly a marketing activity (supporting reviewers by providing resources to help them make sure they’d configured the product correctly, understood the new features, etc.) for end-user products making sure you would come out on top in reviews became a product driver.

So “Win Reviews” drove actual product requirements.  This meant understanding what reviewers would care about, what they liked and disliked about various products, how you might wow them with your new release, etc.  It meant engineering the product with reviewers in mind as the proxy for your end-users.  One could debate if that was really the right thing to do for end-users, and I believe that’s one reason why “Win Reviews” fell out of favor as a product requirement driver.  Circa 1992 reviewers were probably a fair representation of the end-user community.  By 2002 PCs were so ubiquitous that reviewers just represented the Power User niche, and catering to them made it difficult to address the needs of the broader user base.  Somewhere between those two dates worrying about reviews moved out of the product requirements arena and became purely an outward-focused marketing effort.

For the most part this transition away from letting reviewers drive product requirements was a good thing.  It was facilitated by a dramatic growth in ability to directly communicate with the user community.  Of course there was the much mentioned explosion in telemetry.  And Microsoft (through a growing sales force and closer partnerships with OEMs, ISVs, consultants, etc.) greatly increased its direct communications with customers.  Plus the Internet provided a means for users to express themselves directly.  The way I found out how badly I’d missed the boat by leaving Declarative Referential Integrity out of SQL Server 7.0 was by following newsgroups and forums and getting blasted about it.  The formal communications channels had not brought it up at all!  So adding DRI became one of the top priorities for SQL Server 2000.

Now jump forward to the modern era.  On one hand you could expect that reviews should play a smaller role than ever in driving product definition.  But consider the marketing side of things.  When a market participant is the overwhelmingly dominant player they have little incentive to worry about reviews.  Reviews, in essence, can only benefit the underdog.  However, when markets are highly competitive reviews can make a significant difference in purchasing decisions.  Today every segment Microsoft plays in is competitive and often highly competitive, with significant areas in which they are the underdog.  Even in an area they are dominant, desktop computing, they have tremendous competition from their own legacy.  Windows Vista had to compete with Windows XP.  Windows 8 has to compete with Windows 7.  Reviews matter.

Consider where Windows 8 would be today if the preponderance of reviews had lauded it as a great follow-on to Windows 7.  Consider if Windows 8 had amongst its goals “Win Reviews”.  It would have taken a very small number of concessions to the purity of the evolution, and/or prioritizing taking a few steps further along the evolutionary path, to swing the balance of opinion on Windows 8 from negative to positive.  Windows 8 is a great release but to many reviewers, and the Power User class they are part of, it seemed like Microsoft was intentionally rubbing their noses in excrement.  And they’ve repaid the favor by lumping Windows 8 in with Windows Vista (which is a totally ridiculous comparison).

We see this in other areas as well, security being a prime example.  Microsoft Security Essentials/Windows Defender hasn’t been doing that well in published reviews by testing organizations.  When you look at why you discover that there is a disconnect between the methodology the testing organization uses and the way Microsoft thinks of its collection of capabilities.  The methodology often bypasses parts of Microsoft’s offering while exercising the equivalent parts of its competitor’s offerings, thus Microsoft comes across as having the weaker product.  Microsoft addresses this as a marketing problem, trying to get testing organizations to change their methodology and explain the situation to the public.  What it hasn’t done is step back and say “what do we need to change in the products to win the reviews?”

Given where Microsoft is in its various markets what it needs right now is the preponderance of reviews of all of its products to be overwhelmingly positive.  And you can’t get that via outward focused marketing activities.  What Microsoft needs right now is to take a tip from the PC software market of 20 years ago and make “Win Reviews” part of its product planning process.

Posted in Computer and Internet, Microsoft, Windows | Tagged , , , | 65 Comments

Blacked Out due to CISPA

Posted on April 22, 2013 by halberenson

Honoring the CISPA Blackout today.  Check http://www.zdnet.com/how-to-join-todays-april-22-cispa-protest-7000014320/ for more information.

StopCispa

Posted in Privacy | Tagged , , | 1 Comment

Touch Hate

Posted on April 8, 2013 by halberenson

There is a lot of hate for “touch” out there and I thought I’d talk about it a bit.  I can tell when I’m reading an unreasonable discussion because there is always something about having to stand there all day with your arms stretched out to touch the screen.  I stop reading when this is mentioned.  Why would anyone stand there with their arms stretched out constantly?  Microsoft certainly doesn’t require this, so anyone who makes that comment just isn’t paying attention.  Or rather, is just trying to be difficult.  Windows 8 was designed for multi-mode input.  While the priority for the first release may indeed have been to get something truly touch-friendly out there, and make Windows viable in the tablet market, that’s the beginning not the end.

I am using Windows 8 on numerous machines, most of which don’t have touch screens!  My Surface RT has a touch screen and I use the keyboard, track pad, and short-cut keys whenever the situation allows.  But even when my Surface is being used more as a notebook than a tablet, I still reach up and touch the screen from time to time.  Launching an app?  I usually touch the screen.  Need to share something?  I usually touch the screen to bring up the Share Charm.  Scroll through pages in an article?  Yup, I usually touch the screen.  Even touching links on a web page is often easier with the finger than with a touchpad-controlled mouse pointer (though this is not the case with a real mouse).  But a lot of the time, such as when I’m writing blog entries or doing email, my fingers never leave the Type Cover.  I find this mixed mode usage extremely natural.

My frustration with Windows 8 on most of the PCs I use is that they don’t have touch.  And worse, they don’t have multi-touch and gesture-enabled pointing devices.  I’ve played with the Logitech T650 touchpad and it makes the Windows 8 UI design much more palatable.  I’ve noted the same thing when playing with newer non-touch notebooks in stores.  If their touchpad supports the edge-swipe gestures and multi-touch then the Windows 8 UI is a pleasure to use.  If they are just old-fashioned mouse simulators than you really notice the seams between the UI and your hardware.    Microsoft did not optimize Windows 8’s user experience for older hardware, it supports them as a convenience to users.  Microsoft optimized Windows 8 for new hardware, including things that haven’t yet come to market.

Even if you don’t like the idea of reaching out and touching your screen there are a lot of new things coming in terms of Natural UI that Windows 8 is simply a prep for.  I’m surprised that Microsoft hasn’t yet released a next-generation Kinect specifically for controlling Windows devices, with native support in the OS and first-party apps as well (of course) with Windows RunTime support.  But that will come.  And then there is the Tobii REX, which I’d love to add to my existing non-touch PCs!  In both cases we’re looking at new ways to control your PC.  Ways that would be impractical with Windows XP, Windows 7, or WIMP in general.  Why do I say that?  Because they don’t have the precision that WIMP-based interfaces require.  While Kinect enables completely new scenarios, both it and REX can be used to supplement (rather than replace) traditional keyboards and mice in classic “Desktop PC” scenarios.

Still looking for options?  In the past we’ve seen examples of projection keyboards.  Imagine a version that when you “touched” a function key it switched from projection of the keyboard to projection of the screen on the horizontal surface in front of you.  And then let you manipulate the UI using touch and gestures on the projection.  Once again this is far more feasible with Windows 8’s “Modern” or “Metro” than with classic WIMP.

Something less dramatic?  Logitech almost has it right, almost.  I want a mode where the touchpad functions more as a virtual overlay on the touchscreen and lets me touch things rather than mouse over them.  I’d switch to “mouse” mode when editing documents or other higher-precision pointing activities, but stay in “touch” mode for most UI manipulation.

Microsoft is not saying that touch is the “be-all and end-all” of user interface, it is just making it and similar technologies first-class citizens.  Are there tradeoffs involved in such a move?  Of course.  Some are short-term (e.g., one main window with one snapped window in Windows 8), some are long-term.  But they aren’t abandoning the mouse and the need for precision pointing.  Or the physical keyboard.  And they aren’t insisting on a future where you have to stand there for hours with your arms stretched out in front of you.

 

Posted in Computer and Internet, Microsoft, Windows | Tagged , , | 68 Comments

Xbox Always-On

Posted on April 7, 2013 by halberenson

I’m not much of a gamer, so I’ve not really had a strong opinion about the Next-Generation Xbox (“Xbox 720”) Always-On controversy that has gripped the web lately.  I have no idea if its true or what the details may be, and the truth is that the devil is in the details.

Presumably the Xbox will require an Internet connection in order to run games and that the reason for this is to enforce the Digital Rights Management (DRM) scheme.  From what I can tell the real controversy is about DRM and not the actual need for an Internet connection.  People hate DRM in every form, style, intent, etc. that mankind has come up with.  Even the people who insist on protecting their intellectual property with DRM actually hate DRM, they just can’t make the business model work without it.  But in this case the controversy isn’t about DRM specifically, it is about the notion that the next generation Xbox’s DRM scheme would eliminate the resale and rental models for games.  Right?

So let’s explore “Always-On” along two dimensions.  First I want to talk about the raw requirement for an Internet connection and then I’ll dig into the DRM topic.  Yes I know most of you care more about the DRM part, so skip ahead if you want.

I’ve tweeted one point about Always-On and it was something I learned from a friend some time back.  They live in a rural area with only Hughesnet satellite Internet available to them.  Hughesnet has a Fair Access Policy (FAP) that limits how much data you can use in any given 24-hour period after which they slow your connection down to dial-up speed for 24-hours.  My friend had to disconnect his family’s Xbox from the Internet because he’d go to get online to do work and discover his kids use of the Xbox had caused the FAP limits to be exceeded.  Metered connections of one sort or another are all that is available to tens of millions of Americans, and even supposedly unlimited service actually has limits.  Outside the U.S. metered connections are more common.

So when Always-On is mentioned as part of the Next-Generation Xbox I’m left to wonder if Microsoft is paying sufficient attention to the details of what this implies.  To give an example of a case where they did not take DirectAccess.  It has an always-on management channel that will, in the background, ship updates to your system whenever it is connected to the Internet.  In its first release there was no way for an administrator to say “don’t ship updates if this is a metered connection”, and so hundreds of megabytes or even gigabytes of data would be shoved down to your PC no matter what the implication.  This was a significant inhibitor to adoption of DirectAccess, particularly outside the U.S.

So the question is, how much attention is the Xbox team paying to networking issues like metered connections and poor connection reliability?  The truth is that addressing these is not rocket science, it is just prioritizing dealing with them.  For example, can I specify subsets of Xbox functionality that can use the Internet connection?  Can I say, “yes you can use it to maintain DRM but you can’t use it for anything else”?  Can I decide if I want updates downloaded automatically or only with my permission?  Etc.  Another example is when one says “always-on” what does that really mean?  A lease-based mechanism would seem to provide any imagined benefit while handling poor connectivity and reducing bandwidth usage.  In other words, once you check DRM for a game it takes a lease that could last for 24-hours, 72-hours, or perhaps even 7 days before you have to renew it.  You don’t actually have to go out on the network every time the game is played.

Although the real noise in the system isn’t about the network usage, in practice that could become the real problem if Microsoft hasn’t paid attention to the details.

So what about DRM?  DRM frustrates us all both because it intrudes on usability but also because it restricts us from doing things that we feel we are entitled to.  For me the most important variant of this is that when I purchase something I feel it belongs to me and not to a specific device.  I should be able to use it from any device I own, or in fact anywhere in my household (e.g., my wife should be able to watch the movie too).  This becomes more and more true as the price of whatever purchase I make goes up.  At $.99 I do not feel put out by the need to buy something for each of the devices I or my family want to view or run something on.  At $5 I am annoyed (and somewhat impeded) by it.  At $50 I am outraged.  Many new top-tier console games are running around $60, so you know where they sit in my personal hierarchy.

In this context I understand why people would want to be able to create secondary market for games that cost $50 or $60.  That’s a lot of money to spend for something that you, or your kids, lose interest in after a few days or weeks.  You want to either buy a used copy for less, sell the new copy you bought when you lose interest, or rent a copy because you know you won’t be playing the game regularly.  And so you have a particular market dynamic that has been working for much of the last two decades.

But the world is changing.   Game prices for mobile devices are an order of magnitude less than what you pay for those on a gaming console.  Are you getting more for your money on the console?  Of course you are.  Are you getting 10x worth?  For hard-corps gamers maybe, for most people probably not.

Let’s review the game console business model.  Consoles use a subsidized business model.  They are sold for far less than the cost to manufacture (let alone market, sell, and distribute) in return for a share of the sales of all games sold.  So Microsoft or Sony or Nintendo lose money on every console sold, but when you buy your 5th or 6th game they start to make money.  And it isn’t just their games, it is any game on the console.  So buy EA’s FIFA Soccer 13 for an Xbox and a portion of what you’ve paid to EA actually goes to Microsoft.

There are billions of phones, 1.3 Billion PCs, hundreds of millions of tablets, but only about 60 million (of the market leading) Xbox 360s in the world.  For even a top-tier console game that means the potential unit market is actually quite small. Game development costs are high.  Marketing costs are high.  And you’ve got to share the wealth with the console manufacturer.  Combine that with pricing pressure coming from the mobile gaming segment and one has to wonder if the current console game business model is sustainable.  I posit that it is not.

Which brings us to the Always-On DRM question for the Next-Generation Xbox.  If one combines that model with $60 games the result is a total disaster because it is effectively a price increase in a market with severe downward pricing pressure.  But what if this is really about changing the console game business model.  What if you wanted to, nee had to, drive the price of top-tier console games down to $30 or even $20?  The game publishers still have to make a profit on a relatively low-volume product.  Microsoft still has to get enough of a cut to make the Xbox business profitable.  What if the way to do that was to kill the resale and rental markets but drive the price of a new game down to less than they currently go for on the used market?

From the standpoint of business people inside Microsoft and the game publishers this seems like a win-win situation.  Game unit sales volume would go up dramatically.  Opportunities for in-app purchases and other ancillary sales would go up dramatically.  And the cost of a game to the end-user would drop.  There is no loser in this, except for the people running resale and rental businesses.

The bottom line on both my networking concerns and the broader DRM concerns is that not only don’t we know if there really is an Always-On requirement, if there is we don’t know any details.  Microsoft could be giving us something that will make the Next-Generation Xbox far more attractive to a far larger user base, or instituting business practices that kill of the console gaming business entirely.  We just don’t know.

Posted in Computer and Internet, Microsoft | Tagged , , , | 14 Comments