By Joe Wilcox, Betanews
The day following blow-out Apple earnings, my attention turns to Microsoft, which announces fiscal 2010 fourth quarter and year results tomorrow. I'm not the only person thinking about Apple, Microsoft, other tech companies and the future direction of computing.
Overnight, I got an email from Mark Reschke, who clearly is a Mac fan. Reschke is excited about Apple's fiscal 2010 third quarter results, where iPad and iPhone combined accounted for nearly half of revenues. In this post I share Reschke's e-mail and my e-mail response to him.
Often, my Betanews analyses don't reflect my own opinions about the topics, or only some of my real feelings. In my writing, I like to provocatively circle topics from different viewpoints, in hopes of generating discussion and even rethinking established perspectives. My e-mail to Reschke is measured in juxtaposition to his enthusiasm, which Apple has earned. The response also more closely reflects how I see Microsoft.
As a reporter, I've covered Microsoft for more than 14 years. It's simply shocking to see the dramatic change in fortunes. When I started reporting about Microsoft, Apple was nearly bankrupt. In the Noughties, Apple reinvented itself by opening new -- and successful -- lines of business, like iPod, iPhone and iTunes. Microsoft chose to extend Office and Windows, while successfully launching but one truly new line of business -- Xbox.
Macintosh no longer defines Apple, but Office and Windows define -- rather, confine -- Microsoft. Through retail stores and other marketing efforts, Apple built up huge brand equity, even while Microsoft's diminished. I'm saddened to see such a great company stumble; Microsoft executives wander about like teenagers lost in the woods. "We should go this way!" "No, we should go that way!" Each change of direction leads nowhere but the same place: Dependence on Office and Windows -- teenagers trapped in the woods with plenty of food and water but no way out.
With that introduction, I present Reschke's e-mail and my response.
Reschke:
Hello, Joe,I recall this article you wrote in May: http://www.betanews.com/joewilcox/article/The-Windows-era-is-over/127489929. I think it's dead on. After seeing Apple blow away any idea that there is some worldwide recession going on (never mind that there is, it's just when people are buying on tech, they are gathering their pop cans, checking under the seat cushions and pulling together cash to buy into Apple's OS X and iOS ecosystem). In a nutshell, it's amazing -- and people seem very satisfied with the experience.
Apple's 33 percent Mac sales year-over-year growth is almost crazy, and growing like a weed in Asia and various parts of Europe no less. Spain up 59 percent?!
But outside of the Mac continuing to take little nibbles of the PC/Windows world, the iPad is on course to go for 6 million plus per quarter once Apple can fully ramp to meet demand. This is taking away netbook, perhaps even some PC laptop sales, while it does not appear to be denting Mac sales. If Mac sales are a small nibble, iPads may be a bigger bite yet.
Again, it's making Apple brass look pretty stinking smart (if planned!). I think we may need to start looking at iOS products, not as a cannibalization mechanism of Apple's OS X products, but another group of halo effect products only further catapulting Apple way beyond it's competition. It's the way [Apple COO] Tim Cook said they look at it, and judging by the numbers I can't argue with that viewpoint.
Is there an office pool on how much time Ballmer has left? There should be.
Regards,
Mark
Wilcox:
Hi, Mark,There may not be time for that office pool should Microsoft revenue fall short of Apple tomorrow. Apple can't compete on profits, because Microsoft software is pure margin.
Apple's guidance is $18 billion revenue for third calendar quarter, which is about $2.3 billion above analyst consensus for Microsoft. But no one should forget that some of that boost comes from accounting changes that lets Apple realize subscription revenue rather than deferring it. Microsoft collects subscription revenue, too, that would boost overall revenues if recognized rather than be deferred. Fiscal 2011 first quarter would be reasonable time for Microsoft to change accounting.
How many years did it take for SharePoint to become a billion-dollar business? iPad is $2 billion in its launch quarter.
I got hugely criticized in comments for that "The WIndows era is over" post, with accusers calling it flamebait. But it was a sincere analysis, like the one months earlier about Microsoft Office. Perhaps it's the Microsoft era that is over, eh?
The early Windows Phone 7 reviews are promising, which in a way isn't good. The team appears to have taken a radically different approach -- strayed away from the Microsoft mainstream. That's quite good; it's hugely commendable. But Windows Phone 7 is two years too late. When the product fails to deliver fast enough, the Office and Windows hawks will swoop in and kill it--like they did with KIN.
The most striking comments from yesterday's Apple conference came from Tim Cook about cannibalization, which he says company execs view as good. The outside-the-company perspective: Cannibalization is bad. But Apple's perspective makes sense and shows how Apple thinks differently than many other tech companies. Cannibalization is more likely to be among existing customers. Should Apple want them to buy another iPod touch or spend more on iPad and in doing so experience something new, exciting and endearing?
International sales are simply shocking, and that's where Apple will simply kill Microsoft. International sales now account for more than half of Apple sales -- and yesterday's country-specific numbers were shocking. Microsoft's biggest competitor is piracy in all markets, but particularly many international ones. Apple sells physical products and doesn't have this piracy problem.
Microsoft is by no means down and out. The Office and Windows monopolies mint money. But without dramatic realignment, Microsoft's future is legacy, like IBM before it. IBM lost its way during the mainframe-to-PC transition, even while the monopoly continued to generate mountains of cash. Microsoft's position is so eerily similar, as the PC era gives way to the cloud-connected mobile device. IBM had to bring in outsider Lou Gerstner as chief executive to aright the listing company. Microsoft may have to do something similar -- bring in an outsider with radically fresh perspective.
Best,
Joe
In closing, I ask Betanews readers to suggest three-to-five things they'd like to see from Microsoft during fiscal 2011, which started July 1st. Please respond in comments or send e-mail to joewilcox at gmail dot com.
Copyright Betanews, Inc. 2010
