cross pond high tech

How could Microsoft’s Windows Phone licensing business model stand a chance against Google’s Free and Open Android? None of the Redmond giant’s complicated countermeasures worked, its smartphone platform is dead. And yet, inexplicably, Microsoft failed to use a very simple move, one we’ll explore today.

Just back from three weeks in the Country of Good Sin’s heartland, I see Microsoft’s fresh and well-received Fourth Quarter Fiscal Year 2017 Results. The numbers acknowledge what was already notorious: Windows Phone is dead.

“Phone revenue was immaterial and declined $361M.”

This doesn’t come as a surprise. Despite Microsoft’s strenuous efforts to breathe life into its smartphone platform and devices, Windows Phone had been on an inexorable downward slope for several years, confirming a Horace Dediu theorem[as always, edits and emphasis mine]:

“As far as I’ve been able to observe, any company in the mobile phone market that ended up losing money has never recovered its standing in terms of share or profit.”

Let’s recall that, in September 2010, Redmond employees held what CNET called a “tacky ‘funeral’” for iPhone and Blackberry. One wonders how they’ll memorialize Windows Phone.

The gross failure of what once was the most powerful and richest tech company on the planet led to a search for a platform killer. Detectives didn’t think they had to go far to nab a suspect: Android. Microsoft’s Windows Phone was murdered by Google’s smartphone OS. How could Redmond’s money-making software licensing business model survive against a free and open source platform? Case closed.

No so fast.

Microsoft’s smartphone troubles started well before the birth of Android. In a reversal of the famous dictum Victory Has Many Fathers But Defeat Is An Orphan, Windows Phone’s collapse seems to have had many progenitors deeply embedded in the company’s decades-old culture.

But before we look at facts, let’s engage in a bit of fiction, let’s imagine Microsoft decides to fight Android on Google’s turf. In this alternate reality, Microsoft easily kills Android with one simple headline:

Windows Phone Now Free

The rest of the pitch writes itself.

Cars are no longer what they seem to be. On-board computers and their algorithms have invaded all organs, making cars better, but also more susceptible to hacks and invasions of privacy.

Having driven Route 85 between Cupertino and Mountain View a few thousand times, I’m familiar with every rift and gap in the concrete, every subtle camber shift as I follow an habitual, gradual arc through curves and lane changes. Some early Chevrolet episodes aside, I’m behind the wheel of a European vehicle, silent, good lungs, surefooted, precise, the kind of car that translates the driver’s steering motion into a smooth trajectory, no ifs or buts, no need for correction as the suspension takes its time to settle. After 31 years of driving this pleasant road, the feeling doesn’t get old.

A few weeks ago, I drove the familiar route in a new vehicle freshly delivered from Sindelfingen. Something is wrong: The first curve line is “dirty”, it lacks Germanic rigor. At the next curve the steering wheel argues with me, politely but clearly demanding a different trajectory.

When I get back home I look around the dashboard and notice two red indicators that had been hidden by the steering wheel while I was driving. The walkthrough tech at the dealership had set the vessel to autopilot. In retrospect, I should have seen the argumentative steering coming: I had ordered the autopilot and other geeky features that were unknown when I bought my previous chariot just five years ago. On the road, the autopilot had interpreted my steering ‘optimizations’ as daydreaming lane drift and had stepped in to keep me in line.

I disconnect the autopilot and go for a drive; the familiar pleasant feeling returns.

In a 1957 essay about the Citroën DS (pronounced “Déesse”, goddess) Roland Barthes hailed the modern car as…

“…the exact equivalent of the great Gothic cathedrals: I mean the supreme creation of an era, conceived with passion by unknown artists…it excites interest less by its substance than by the junction of its components. ”

The striving, energetic copulation of the arts and technologies, the ‘junction of components’ has continued. Cars are now nearly completely penetrated by automation and algorithms.

The iPhone’s 10th birthday was a happy opportunity to look once again at Steve Jobs’ masterclass in storytelling and positioning, and to contemplate, with incredulous gratitude, the enormity of the consequences. As Horace Dediu, our nonpareil tech historian and poet, recently remarked with his trademark humor, The First Trillion Dollars is Always the Hardest [as always, edits and emphasis mine]:

“In its first 10 years, the iPhone will have sold at least 1.2 billion units, making it the most successful product of all time. The iPhone also enabled the iOS empire which includes the iPod touch, the iPad, the Apple Watch and Apple TV whose combined total unit sales will reach 1.75 billion units over 10 years. This total is likely to top 2 billion units by the end of 2018.

[…] iOS will have generated over $1 trillion in revenues for Apple sometime this year.

In addition, developers building apps for iOS have been paid $60 billion. The rate of payments has now reached $20 billion/yr.

No one saw it coming, Apple execs included. For their part, the high tech incumbents made many infelicitous statements, only to be steamrolled when the iPhone and, later, Android changed everything. The Smartphone 2.0 wasn’t just a one-to-one communication device, it influenced media creation and consumption, transformed everyday commerce with in-phone wallets and touch ID, turned social networking into a ubiquitous tool. It even forced Enterprise information systems to completely rethink and retool their infrastructure — this wasn’t simply a computer with a “smaller form factor”.

In retrospect, the ascendency of Smartphone 2.0 and the way it has shaped our culture seems obvious and natural. But the celebration and contemplation overlooks a crucial Sine Qua Non, a necessary (but not sufficient) condition: Unlocking the carriers’ grip on handset specifications, marketing, and content distribution.

In the past 40 years our personal computers have, of course, become immensely more powerful and convenient, but the roots of our interest in personal computing haven’t changed. And, against many odds Apple, has become a giant, world-spanning, immensely rich company.

In retrospect, we can see three Apple eras.

Apple 1.0 was a turbulent period: The rise of the Apple ][, its loss to the IBM PC and Microsoft; the hope and trouble with the Macintosh; Jobs forced out followed by a succession of “professional” CEOs and progressively deteriorating finances.

In retrospect, Jobs’ departure from Apple was one of the best things that happened to him and the company he co-founded. If hadn’t left for an outside tour, the Pixar success and the NeXT technical achievements and business challenges, he wouldn’t have been able to return and jump start the company’s next phase.

Apple 2.0 began in late 1996 when Jobs managed what turned out to be a reverse acquisition of Apple. We owe much gratitude to then-CEO Gil Amelio who unwittingly saved the company hiring Steve to “advise” him. Jobs’ advice? Show Amelio the door and install himself as “interim” CEO. Jobs then made an historic deal with Bill Gates which gave him time to let his team of NeXT engineers completely rebuild the Mac OS on a modern Unix foundation. Steve also rummaged through the company and found Jony Ive who gave us the colorful iMacs, the first of a series of admired designs.

What followed is recognized as the most striking turnaround story in any industry, one that has been misunderstood and pronounced as doomed at almost every turn. The list of Jobs’ “mistakes” includes killing the Macintosh clone program by canceling Mac OS licenses; getting rid of floppies and, later, CD/DVD-ROMs (mostly); entering the crowded MP3 player field; introducing iTunes and the micropayment system; the overpriced, underpowered $500 iPhone; the stylus-free iPad (ahem)…

We’ve seen the punishment for these mistakes: Apple sells approximately $250B worth of iPhones every year, that’s six phones every second manufactured and delivered to more than 130 countries.

Despite it’s enormous size and influence, Apple’s business remains simple to understand. The company makes personal computers, as illustrated in this telling line-up:

Personal computers, small, medium and large.

Everything else Apple does — from iTunes to iCloud storage, apps and accessories — has one and only one raison d’être: Push up the volumes and margins of the company’s personal computers.

Steve Jobs left us in early October 2011, Too Soon, as I wrote in my heartfelt homage to the once unmanageable co-founder who turned into a manager extraordinaire, captain of industry, and editor-in-chief of a team of designers, engineers, supply-chain managers, and finance experts.

We’re now in the Apple 3.0 era, under Tim Cook’s leadership.