Touch, and go…

…was the title of a recent Economist story on Microsoft ( The core thrust of the article is that while Microsoft still has 90% of the PC OS market, it has only 30 %of the personal computing market (factoring in tablets and smart phones). With Forrester forecasting that by 2016, PCs will account for less than 20% of the personal computing market, Windows 8 has to win in the tablet and smartphone market for MS to remain relevant.

I am typing this blog post on my MS Surface, and I think that MS has a shot. But it is touch, and go. Windows 8 has several redeeming features:

  1. One OS across devices. The integration across devices is useful. For example, I can create documents on my Surface and edit them on my PC, and the SmartGlass app allows tablets and smartphones to become adjuncts to X-Boxes in the home showing additional information and enabling you to use your Win8 tablet/phone as a remote control.
  2. Designed for content creation. The Surface is really designed to allow users to create content in addition to consuming it. The touch keyboard, the dimensions of the Surface (its more rectangular, making it easier to type), and Ofice2013 makes it much easier to create content.

At the same time, Microsoft lacks the ecosystem that Apple has developed over the last decade. App and accessory developers offer a host of “add ons” that make the Apple experience much more compelling for most consumers.

Even if Windows 8 succeeds, by 2016, MS’s share of the operating system market will be well below 50%, probably closer to 30%. Given the uphill road ahead, what should Microsoft do ? Here are my 2 cents:

  1. Acquire Netflix. X-Box Live and Skype are already compelling consumer brands. With the addition of Netflix, Microsoft will be the undisputed leader in online consumer entertainment. Netflix will also enable Microsoft to take the lead in online video, an emerging $250 B+ market (over time). Most importantly, it will give Microsoft a credible CEO successor in Reed Hastings. In fact, I cannot think of a more suitable CEO for MS than Reed. He knows MS well (has been on the board for 5 years, although he did recently announce that he would not seek re-election), has software/geek chops (Reed was the founder of Pure Software prior to Netflix), will bring much needed online DNA into the company and will have the external perspective required to radically re-shape the company
  2. Let go of its obsession with Windows. The one thing that really bugged me about the Surface was that when I tried to log into its Skype app, it insisted on changing my Skype id to my Windows id. That is STUPID! Having to change my 10 year old Skype id really pissed me off. And it reminded me of the time that MS tried to brand its search engine “Windows Search”. There are many other vestiges of MS’s Windows obsession in the Surface which only take away from the product experience.  Emotions apart, MS needs to accept that the best days of Windows are behind it, and move on. In the same vein, appointing a Windows/MS veteran as Ballmer’s successor would be a mistake, as it would only perpetuate the Windows legacy.
  3. Acquire Dropbox or Microsoft needs a credible way to engage with iPhone and Android users. It has not launched versions of Office for either platform, and I suspect that it will keep it that way for a while, given that Office integration is one of the compelling features of Windows 8. Skype and Netflix (if it acquires it) will provide MS with consumer touch points on non-Windows devices. Acquiring one of the leading productivity apps on the App Store will provide Microsoft with a strong launch pad for its iPhone/Android strategy.

The Economist said it well, it is touch, and go for Microsoft. I wish it well.

About Ashu

General Partner with Foundation Capital. Areas of interest range from digital media, mobile and internet infrastructure to all things related to India. Currently on the board of TreeHouse, Aspire, Conviva, Agni and TubeMogul.
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4 Responses to Touch, and go…

  1. Amit Dhir says:

    I agree with the view, Ashu. The do have a chance but the share will be under 50% in the tablet market. The couple of places they do have to continue to look at innovating are in form factor (kick stand, keyboard) and focus on the enterprise market (end-to-end, in integration of apps within their portfolio (Office, Skype, Yammer, Dynamics CRM) and ensure alignment with others (box, etc.) or acquire them, as you.

    • Fischer says:

      උඹට wish කරන න පරක ක ව ණ ට සම ව යන මල ල ය . domain retrsgiy ය ක ර ය වල වලට ව ර ද ධ ව ණ ට ම සම ම නය උඹට ද න න ගත ත ත රණයට අබ ඇටයක තරම වත අප ව ර ද ධ න .(ම ව තරක න ව ය මම හ තන න SBU එකත එහ ම තමය .)පර ස සම න ඉස සරහට පලයන … ස බ ප ත ම .බ ද සරණය උඹට.(උඹ ක ව වට තරහ ව න න එප . බ ක ක න ම ක යන ක ට එහ ම තමය .)

  2. atul says:

    interesting thoughts, ashu.
    i wonder if the main question is – does steve balmer have it in him to radically change MS course? all the steps you mention are not instictive MS steps

  3. Frank T says:

    A serendipitous episode brought Ashu to my radar … and his blog posts. I thought I would pen a response to his 3-year old post. An update on current state of Ashu’s prediction on MS.
    [Caveat: hindsight is 20-20]:

    1. Acquiring Netflix:
    – Nadella succeeded Ballmer, not Hastings but an MS veteran. Netflix market cap has increased 6.7X to 30B+ making it lots more costly to acquire. [Referencing MS’s failed attempt to acquire Yahoo].

    2. Un-Windows:
    – Nadella has begun letting go “Windows” –
    – Side note on Skype: Skype’s iOS App is an inferior port with poor call quality and drop calls! As a 10+ year paying subscriber, it is losing my love. Given its current trajectory and the eminent rise of social messaging app, Skype will be irrelevant in 3 years if not shorter.

    3. Acquire DropBox or
    – Box has gone public. At 2B market valuation with its growing enterprise customer base, it could be a great acquisition with immediate billion-dollar revenue growth for MS. Granted Box will cost more once MS’s intent become public.
    – Dropbox has hired a new CFO hinting at possible IPO. Timing makes Dropbox a more complex and potentially costly pursuit. MS and DB announced strategic partnership in Nov 2014 which was encouraging. The challenge is finding strategic alignment between enterprise versus consumer focus:
    – This might work given MS’s XBOX and DropBox both has passionate user base: 1+1 = 3 BOXes?
    – Azure + DropBox For Business: If integrated right could solidify MS’s position in Cloud Oligarchy among AWS and Google Cloud.

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