Sell Microsoft NOW – Game over, Ballmer loses

Sell Microsoft NOW - Game over, Ballmer losesMicrosoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCsMicrosoft’s future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.

But that did not happen.

With the data now coming it, it is clear the market movement away from Microsoft products, toward Apple and Android products, has not changed. On Christmas eve, as people turned on their new devices and launched their first tweet, Surface came in dead last – a mere 2% compared to the number of people tweeting from iPads (Kindle was second, Android third.) Looking at more traditional units shipped information, UBS analysts reported Surface sales were 5% of iPads shipped. And the usability reviews continue to run highly negative for Surface and Win8.

This inability to make a big splash, and mount a serious attack on Apple/Android domination, is horrific for Microsoft primarily because we now know that traditional PC sales are well into decline. Despite the big Win8 launch and promotion, holiday PC sales declined over 3% compared to 2011 as journalists reported customers found “no compelling reason to upgrade.” Ouch!

Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to the mobile device penetration  – the market where Surface and Win8 phones have failed to make any significant impact or move beyond a tiny market share. Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made consumer and businesses now favor iOS and Android.

Microsoft’s monopoly over personal computing has evaporated. From 95% market domination in 2005 share has fallen to just 20% in 2012 (IDC, Goldman Sachs. Comparing devices, in 2005 there were 55 Windows devices sold for every Apple device; today explosive Apple sales has lowered that multiple to a mere 2! (Asymco). Universally the desire to upgrade Microsoft products has simply disappeared, as XP still has 40% of the Windows market - and even Vista at 5.7% has more users than Win8 which has only achieved a 1.75% Windows market share despite the long wait and launch hoopla. And with all future market growth coming in tablets, which are expected to more than double unit volume sales by 2016, Microsoft is simply not in the game.

Sell Microsoft NOW - Game over, Ballmer loses

These trends mean nothing short of the ruin of Microsoft. Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums on-line (negative $350M-$750M/quarter). No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits Microsoft is not sustainable.

So what can we expect at Microsoft:

1. Ballmer has committed to fight to the death in his effort to defend & extend Windows. So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.

2. As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, any hope of future dividends falls to zero.

3. Expect enormous layoffs over the next 3 years. Something like 50-60%, or more, of employees will go away.

4. Expect closure of the long-suffering on-line division in order to conserve resources.

5. The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows – and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.

6. As more and more of the market shifts to competitive cloud businesses Apple, Amazon and others will grow significantly. Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical experiences with Zune (mobile music) and Microsoft mobile phones. Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

Missing the market shift to mobile has already forever tarnished the Microsoft brand.  No longer is Microsoft seen as a leader, and instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership. The declining sales, and lack of customer interest will lead to a tailspin at Microsoft not unlike what happened to RIM. Cash will be burned in what Microsoft will consider an “epic” struggle to save the “core of the company.”

But failure is already inevitable.  At this stage, not even a new CEO can save Microsoft.  Steve Ballmer played “Bet the Company” on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success. Unfortunately, the other players already had enough chips to simply bid Microsoft out of the mobile game – and Microsoft’s ante is now long gone – without holding a hand even remotely able to turn around the product situation.

Game over. Ballmer loses. And if you keep your money invested in Microsoft it will disappear along with the company.

image credit: winbeta

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Adam HartungAdam Hartung, author of Create Marketplace Disruption, is a Faculty and Board member of the Lake Forest Graduate School of Management, Managing Partner of Spark Partners, and writes for Forbes and the Journal for Innovation Science.

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17 Responses to Sell Microsoft NOW – Game over, Ballmer loses

  1. CD says:

    Just wanted to let you know that your blog’s design, at least in chrome, is an absolute mess. Nearly unreadable. Should get that fixed if you ever want people to take you seriously about tech related topics.

  2. CD says:

    Oh hey, there it goes. CSS didn’t load the first time. Looks much better now.

  3. Ken Peterson says:

    How can one take this seriously when just a couple of months ago Adam Hartung wrote an article Why I Still Think Microsoft Will Win with Windows 8 praising Microsoft and seeing it as a winner. Confusing?

  4. Bob Wilbert says:

    Ken Peterson- he is playing both sides of the argument. Regardless of outcome he can point to an article predicting his successfully predicting the situations outcome.

  5. Eiren says:

    I think you’re a little short sighted here as you’re forgetting that unlike some companies, who have one or two multi-billion dollar businesses, MS has over a dozen.

    They’ve also got significant reach across all platforms and a cohesiveness in that capability that nobody else has, or comes close to.

    Of course there’s the simple fact that the machines currently produced for Windows 8 simply do not take advantage of it in an effective manner; it’s like having a Rolls Royce engine stuffed into an AMC Gremlin. The only fresh concepts out there are the Surface and Vaio Tap 20 machine’s at the moment.

    Speaking of Surface, you’re rather premature in passing judgment since the Surface Pro isn’t even out yet; my mum even knows this is the “real” Surface to go buy. ;)

    But hey, nothing new here as the death of Microsoft has been predicted annually for decades now and you’ve played some silly games with numbers to compare apples to oranges as well.

  6. Foo Bar says:

    You make many convincing arguments. But then you stretch it too far. It is fair to say Microsoft is in trouble, but game over, I am not sure.

    You are discounting many facts in favor of Microsoft. Massive balance sheet, Largest installed base, Huge pull from many products that are still tied to Windows hegemony (Intuit Quicken, Exchange, and many day-to-day necessities for most consumers and business users).

    In many ways, similar arguments could have been made for several giants which are back when people called them dead. – Just look at IBM and Apple. I would not discount Microsoft, the one thing they do have in favor compared to the situations at IBM and Apple is very strong balance sheet, massive revenues and profit margins by any standards.

  7. bob says:

    so, so, many things twisted in this article.
    I hope you’re brave and honest enough to write an “I was wrong about the following” article if your predictions don’t come true.
    businesses aren’t about to start buying apple laptops, they’re not cost efficient.
    for home use some people will use tablets, and when there are decent MS OS based tablets people will use those too. is there erosion? yes, because there are cheaper alternatives now for certain markets, but it’s by no means death for MS.
    windows 8 is going to be painful, yes. but that was expected, since every other OS since DOS2 has been that way. which I imagine is why you chose to compare win8 to vista instead of windows 7, which I would guess has better numbers than vista.
    so, yes, win8 will be a pain, but it will be fixed with either service packs or a win8.5 equivalent.
    and the tablets and chrome books are on their way, etc etc.
    I don’t expect MS to lose much more here than they lost MS Office users to Google Docs or OpenOffice.
    some yes, but by no means a killer.
    look forward to your retractions, if you’re still around in 3 years. ;-)

  8. gina dixon says:

    I think you should add Apple to game over. Clearly they are running down the dell path and packard bell path. Their lawsuits has stifled innovation because their capital investors are afraid of patent suits.

    I for one think that Windows should be seperated adn redone to survice — also

    Both Apple and Microsoft need some new ideas that win and put away old ones, look at the ipod – they dropped the ball – it went from big to nothing..

    itunes redo was something to not of finally but still overkill see songbird free

    microsoft is working on cloud with office , they have some things with skype going on. but were is the future?

    google at least is still innovating trying multiple projects i just put chromeos on my old netbook love it, i have multiple laptops and tablets also

    when chromeos goes touch == that will change somethings
    and when chromeos allows other application installs —
    and if Adobe developed versions for ChromeOS .. that will take a huge market share away from windows

  9. Rich M says:

    I’ll agree with several points and then point out several flaws in the thinking here.

    PC sales are stagnant and rightfully so. There haven’t been any major developments in the market place on either the hardware or software side to push the market forward. Windows 8 and Touch PCs are still relatively novel ideas. Most users don’t like sitting in front of large screens trying to navigate. On the other side of that touchscreens and a W8 style interface aren’t needed in the enterprise level, which drags down sales (more on that later). Add to that most PCs, tablets, smartphones ect or more powerful than most users need, there is less incentive to incur cost associated with upgrading.

    The enterprise by and large isn’t targeted with Windows 8. Most haven’t adopted Win7 yet, but they are starting to trickle in.

    The flaws in your thinking. Windows still holds a dominate market share in the Desktop Personal Computing business. To set it straight, there is a difference between personal computing “devices” (PCDs) and personal computers (PCs). You aren’t seeing many organizations dumping PCs in favor of tablets and I doubt you will. (Apple has been loosing ground there too if you didn’t notice.)

    Yes MS missed the boat with the rise of PCDs but they are no where near sunk in the PC market. As long as companies continue to want and need PCs they’ll be find.

    By the logic you are employing Apple is just as likely set for failure, so would almost 3/4 of all tech/software companies on the market today. Apple relies on a single device (or set of devices) to account for almost all of their income. They haven’t shown any innovation in years and they are slumping. Are they too doomed?

  10. MNT says:

    Having used the surface (I do not own one) as well as starting to use windows8 on my new acquired laptop I see the Microsoft position as a long term play. With ios and android as the current dominant players who thought the masses would jump to buy a surface? Once computer users warm to windows8 a surface or descendant device is not such a stretch. That is my take on it.

  11. Dan St. Sauveur says:

    Microsoft has always been kind of arrogant and lacked vision. Bill Gates infamously said the whole internet thing wasn’t going to go anywhere. The trends were OBVIOUS top everyone at Microsoft. Why didn’t they listen when users who bought Vista PCs back installed XP at additional expense? Windows 7 is only installed on PCs that came with it, and it’s ok enough not to buy another version of Windows. Version 7 was only excepted because it was forced by threat to end of life XP? I can only think that there is probably a culture there that engineers didn’t feel comfortable telling their bosses anything negative. That problem has now self corrected. I can’t remember which Google exec was asked about windows 8 ports said Google has no such plans, citing there are not enough apps or market share to justify the expense. The open source alternative got there first, and Microsoft didn’t seem to understand what the meant. They know now. Steam is moving to Linux and they won’t be the only game company. Others are probably doing so quietly without a public announcement waiting to see how things go. The Lifeboats are already sailing, and if you don’t already have a plan for the Android / Apple world you don’t need to bother, you missed the boat.

  12. smadpr says:

    Remove Ballmer and see the results. You will be surprised that Server and Tools division will actually make tons of profit

  13. Vincent L. Gambino says:

    Actually Foo, if you have been in this peculiar line of work as long as I have, you would realize that IBM has “died” twice in the trade press: once at the hands of Digital Equipment Company (who?) and their VAX machines in the late 70′s, and again when Apple inverted the marketplace with a non-hobbyist microcomputer. However, back then IBM had strengths that Microsoft does not – long-term, deep-running research in basic physics down to the sub-atomic level, for just one. Bernard Mandelbrot was a long-time IBM employee. Microsoft is for the most part nothing more than a company that gleaned tremendous success by being at the right place at the right time, and then starting believing its own press clippings. In addition, I have it on fairly good authority from a former MS employee and current contractor that main activity since Gates left has been political maneuvering and posturing at the expense of productivity and competence. In fact, I was told that Ballmer axes employees based on his perception of how much of a threat they present to his unquestioned authority (Sinofsky?) It’s sad story, but hardly unprecedented. You are correct that they may not go down as hard or as suddenly as this article predicts, they do still have an s-load of cash, but there does not appear to be much potential upside in Redmond a this point. It’s going to get much worse before it improves (if that happens at all). I glad I mentioned DEC, because on further consideration, that company might be the perfect analog for MS…


  14. Pingback: Innovation Excellence | Sell Microsoft NOW – Game over, Ballmer loses | impresa |

  15. A very interesting article, though I would beg to disagree with some points. Microsoft is by no means dead, neither is Windows. Perhaps one thing that made MS wobble was the Vista OS, but MS purists like myself felt that Microsoft more than redeemed themselves with the Win7 OS. I started my career on DOS and grew with Windows 3.2 to the current Windows 8. I am not an Apple person, I don’t like their products, I think that it is seriously over rated (like Gangnam Style, one fool says it is good and every other fool agrees even though it is a load of crap). Here’s one Windows die hard who will stick to MS.

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