3
Sep

Even Apple Listens When Microsoft Debuts New Themes for Product Promotion

For several days in August, 2014, the online New York Times web site ran a front page advertisement for Apple’s iPad tablet computer. This ad presented readers with a short success story illustrating how tablet consumers have been using the iPad for some real work, and not the leisure activity more often used for a promotional opportunity like this one.

The same type of marketing communications content filled up the middle portion of Microsoft’s online, audio and video webcast debut of the Surface Pro 3, which was originally published on May 20, 2014.

But Apple’s attention to Microsoft’s style of product promotion for the Surface Pro 3 evidently didn’t just stop with providing its audience of potential consumers with its own examples of business applications for its tablet computers. If rumors about Apple’s product development plans can be taken as a reliable indicator of where the iPad is headed, this attention appears to have also permeated the actual design of the new iPad. On August 26, 2014, Daisuke Wakabayashi published an article for the online Wall Street Journal titled Larger iPad Heralds Blurring Among Apple Devices.

With a rumored screen size of 12.9 inches, the new iPad will be larger, by nearly one inch, than the Surface Pro 3 (which has a 12 inch screen). But of even more importance, Wakabayashi’s contention about the new iPad and a “blurring among Apple Devices”, if it proves accurate, places Apple in lockstep with Microsoft along a path of positioning its tablet as a laptop competitor.

If readers remain skeptical about Apple following Microsoft’s lead, it may be helpful to reflect on what segment of the consumer market for tablets likely remains “untouched”, despite nearly 4 years of heavy marketing of this product. The remaining segment at the top end, one can argue, is largely made up of enterprise business consumers, and their siblings in the public and not for profit sectors. For these markets, the entertainment features of tablets are “nice to have”, but not “mission-critical” capabilities. Given Microsoft’s position in these consumer markets, it makes complete sense for Redmond to be leading Cupertino around the neighborhood.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

20
Jun

Will Microsoft Add Some Definition to the Implications of Intel’s Guidance Announcement for the Broader PC Market?

In the aftermath of Intel’s Guidance announcement of June 21, 2014, thousands of words have been written by what looks like an ever growing list of analysts about what the import of these numbers actually mean, not only for Intel®, but for the overall PC market.

Three themes run through most of the commentary:

  1. The improved demand for PCs is a temporary phenomenon, largely the result of increased sales of PCs to businesses
  2. Business demand can’t be counted to last as the driver is the end of product life for Microsoft® Windows XP
  3. Some of the increase in sales can be found in more interested consumers purchasing “2 in 1” computers, which can be used either as a laptop, or as a tablet

There are some issues with each of these three themes:

The first theme underestimates the importance of improved business appetite for PCs, and includes a prediction about how long this improvement will last. There are few tablet computers on the market today (with the notable exception of Microsoft’s Surface Pro 2 and 3, but more about these later) with attractive street prices above $1,000.00. But there are quite a number of PC options for desktop computers, laptops, and, especially, servers carrying a price about the $1K number. So improved business appetite for comparatively higher priced computers will likely be a good thing, not only for Intel, but for its OEMs, the businesses manufacturing other parts for these computers, and more.

I don’t believe there is enough data, at least as of yet, to produce a reliable prediction as to how long this improvement can go on. No one has factored in the possibility of a change in consumer sentiment about the safety of cloud computing. If one agrees with a notion about consumer appetite for tablets (but this notion can also be applied to smart phones and even home entertainment computers/game consoles) based around the usefulness of these “portable screens” as superior viewers for e-reading, movie watching, games, and television, then cloud SaaS products are going to be more important for this segment of the computing market than would otherwise be the case for PCs. If the present market potential for these devices is approaching saturation, and the threats represented by the never-ending string of successful cloud computing hacks grow more intimidating, then it may be the case the improvement in the PC market may have greater longevity than analysts have planned upon.

As to the 2nd theme, as I wrote in an earlier post to this blog, perhaps a driver is an improved consumer perception of Microsoft’s Windows 8 operating system. Microsoft formally announced the end of life for Windows XP last year, and the actual due date, in April of this year, will soon be a quarter behind us, so I’m not sure migrations to new computers replacing Windows XP is a big driver, any longer.

Finally, and this is a big point, hasn’t Microsoft maintained a very consistent approach to the tablet market, all along, to present the Surface product line as the best method of improving productivity, while, at the same time, supporting consumer needs for great e-readers, movie viewers and portable game consoles? In sum, isn’t the Surface tablet a great example of one of these “2 in 1” computers? But with the name tablet?

Since the Surface Pro 3 announcement last month, which included a video presentation about how some customers have been using the Surface tablet to enhance productivity, the New York Times web site has featured what looks to be a daily ad from Apple presenting precisely the same type of information about some prominent consumers of iPads. Is it safe to assume, then, some traction for Microsoft’s tablets as examples of these “2 in 1” computers. If this assumption is reliable, then doesn’t the argument end up in the circular file? After all, the Surface is a tablet and not, per se, a PC.

Ultimately, when Microsoft either next reports earnings, or, potentially, announces a change in its own guidance (and I have absolutely no indication whatsoever of its plan to do so), we should get some more useful color on this point, right?

Disclaimer: I’m long Microsoft and Intel. I am not invested in Apple. Neither am I invested in the New York Times

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

15
May

Microsoft has an Announcement Scheduled for May 20, Will They Introduce a Surface Mini Tablet?

On Thursday, May 7, 2014, Bloomberg published an article titled Microsoft Said to Use Qualcomm Chips in Smaller Surface. The article was written by Ian King and Dina Bass.

The article reports “Microsoft Corp. (MSFT) is planning to introduce a new, smaller version of its Surface that will use Qualcomm Inc. (QCOM) processors for the first time,” The publication of this article, rather soon after the publication of IDC’s latest survey of the worldwide tablet market makes sense.

As I wrote in a recent blog post, IDC survey results spelt problems for Microsoft, and for NVIDIA. The former saw its likely quarterly worldwide tablet sales numbers folded into the “other category”, while the Android O/S and Samsung were reported to have grown sales, year over year, by 32%. I surmised the repercussions of the IDC report on the latter, NVIDIA, could lead to the demise of their efforts to play a major role as a tablet chip vendor.

I should also note I hypothesized Microsoft might interpret the results to be a good reason to exit the tablet market, at least with the Surface product line.

If the Bloomberg article is credible (and we will all hear the answer to this question when Microsoft holds its scheduled meeting on May 20th), then it’s clear Microsoft is digging deeper into the worldwide competition for tablet consumers, opting for, perhaps, a less costly CPU for a smaller Surface, the long awaited “Surface Mini”. Of course, we can not tell how NVIDIA has been affected by Microsoft’s decision to drop the Tegra for the Qualcomm SnapDragon processor, but it is safe to say the result will be less than positive and, perhaps, important enough “bad news” for product management to re-evaluate the extent of NVIDIA’s commitment to the tablet market.

I would not be surprised to learn at Microsoft’s next quarterly earnings report about how the Surface Mini, with the Qualcomm processor will deliver more margin, and a lower cost of goods sold. Both of these production improvements may contribute to a point or two or more of additional margin on the hardware.

Disclaimer: I’m long Microsoft and have no present position in NVIDIA, Samsung, Qualcomm or Google. I am neither affiliated with IDC, nor with Bloomberg LLP.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

30
Jan

Are App Stores a Looming Cash Machine?

Consumers opting to buy a Microsoft® Surface 2 will receive a $25.00 coupon in the box, along with some other promotional offers. This coupon can only be used to purchase an item offered in the “Store” feature of the Surface 2 Start Screen. But using this coupon can be a challenge. My review of the Apps offered didn’t produce much in the way of productivity. I noted lots of games, and lots of free Apps.

So why is Microsoft including the coupon in the retail customer product package? Anyone listening to Apple’s Q1 2014 webcast Earnings Call will hear Peter Oppenheimer sum up a very large business for Apple — it’s App Store. Oppenheimer estimates “[t]he App Store now offers 1,000,000 Apps in 24 different categories, and cumulative downloads have surpassed 65 Billion”. (quoted from the Apple webcast, a link to which has been provided in this post)

These numbers are not insignificant, especially for a company like Microsoft, which, historically, has always maintained a healthy developer ecosystem. Indeed, one can argue much of Microsoft’s success across the early days, following the launch of Windows, depended almost entirely on the third party developer community and the applications they brought to the public for the platform.

Oppenheimer goes on to present an even more important number: “Our App developers earned $2 Billion from sales of Apps for the quarter”. With an annual run rate of $8 Billion, any 3rd party business simply building Apps for Apple’s App Store might be looking forward to a very promising future.

Certainly Microsoft has not been slow to learn this lesson. The $25 box stuffer coupon makes sense as a means of driving customers to pump up the Store feature of the Surface, and the Windows Phone user experience. There are challenging impediments to Microsoft successfully kick starting this business, not the least of which being the small footprint of Microsoft’s mobile devices across the broad market when compared to Apple’s iOS. So a rapid, successful ramp up in phone and tablet units sold is a mandatory requirement of launching the Windows store App effort.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved