I’m bullish on Redmond again.
Don’t call me a Microsoft fanboy, though. If anything, it would be easier to accuse me of Apple fanboy-ism. I own an iPhone, an iPad, an iPod, and a second iPad for family use. I even have a company-issued iPad for mobile-related projects at work. I just want the best technology products available, and right now — at least in my opinion — those all come from Apple. Though, to be fair, Android-based smartphones — across of a variety of hardware manufacturers — have a larger share of the smartphone market.
Regardless of your preference for Apple or Android, however, it’s clear that Microsoft — along with Research in Motion (RIM) — has a lot to lose as consumer preferences influence enterprise buying decisions. A Cisco study, in fact, reported that 88% of IT leaders are seeing increased growth of Bring Your Own Device (BYOD ) policies, which allow employees to choose their own work-related computer hardware. A lot of this is driven by intense consumer demand for Apple products, and to some extent higher-end Android smartphones from Samsung and other manufacturers.
Standard-issue BlackBerrys and cheap laptops are under attack. This situation is problematic for organizations concerned with cost containment and data security, however, as IT begins to lose oversight of the devices that employees connect to company networks.
Enter the Microsoft Surface tablet.
It runs Windows, with all the familiar Office applications (at least the Pro version does). It has a keyboard. It’s secure. Essentially, the device is a touch-screen laptop in a tablet’s clothing. Some commentators have gone so far as to say that the Surface isn’t even truly competing with the iPad.
From a perception standpoint, then, the Surface tablet is poised to solve a huge issue that CIOs and other executives have with BYOD, and more specifically, with the invasion of iPads into their previously tightly-controlled environments.
The problem: CIOs are deeply concerned with controlling their device footprints.
As companies deploy mobile devices (especially tablets) to mobile workers in sales, event management, on-site tech support and other functions, the number of devices that require IT oversight begins to creep uncomfortably upward. Each incremental device on a company network increases the cost to serve an employee base, and the last time I checked, CIOs weren’t complaining about budget surpluses.
CIOs want to keep the ratio of devices per employee at 2:1, or lower, in order to control costs. Consequently, the refrain that I’ve started to hear from IT leadership, then, goes (facetiously) something like this, “Sure, I’ll grant your request for an iPad. Just let me know which device you’ll give up in return — your laptop, or your phone.”
The tablet-for-a-laptop trade-off just isn’t a legitimate option for most employees. Let’s face it: the iPad is better-suited for consuming information, rather than creating it. For browsing the web, checking email, watching videos and using apps, the iPad is a great device. It just works. However, specialized apps and hardware (e.g. keywords) are often needed for content creation, data security, enterprise email access, and integration with Office applications. Microsoft’s Surface tablet won’t come with these issues, thereby enabling IT leaders to meet the increasing mobility needs of workers while simultaneously controlling costs (by replacing laptops).
Microsoft has an enormous opportunity to disrupt tablet use within enterprises.
While many analysts are focused on comparing the Microsoft Surface to the iPad as a consumer device, Microsoft’s best opportunity to gain early traction with the Surface is likely the enterprise market, a segment in which 80% of the Fortune 100 have deployed iPads for productivity purposes.
But Microsoft has to nail this opportunity out of the gate. A good comparison is RIM, which rushed its highly-anticipated BlackBerry PlayBook tablet to market out of desperation. The PlayBook has been an unmitigated disaster, and has contributed to RIM’s stock price free fall since its release (see chart).
Here’s how Microsoft can get the Surface right, the first time:
1. Make it easy for application developers to build apps that run on one operating system, across smartphones, tablets and laptops/desktops. This is key, and Microsoft is already taking this step.
2. Continue paying app developers to build top apps for Windows devices. Microsoft has been footing the bill for companies such as foursquare to bring versions of popular apps to Windows phone. While this is a highly unusual and expensive approach, it’s strategically brilliant. If Windows devices support most of the top mobile apps, this reduces switching costs for iPhone, iPad, and Android users. Microsoft needs to continue financing app development for makers of popular apps, and sell their accessibility across devices.
3. Get the messaging right. Is the Windows RT model a toy for consumers who want to play with apps? Is the Surface for Windows 8 Pro model aimed toward making workers more productive? There is already confusion regarding the two devices. Microsoft’s Marketing Communications team will need to work hard to market the RT and Pro tablets differently, especially given that many business executives still scoff at iPhones and iPads as “toys.”
4. Leverage its best assets, such as Xbox and Skype. This is a no-brainer. The Surface must — and undoubtedly will — come with seamless Skype integration at launch. What is less clear, however, is how the Surface will connect to the Xbox ecosystem (e.g. Will the Surface eventually double as an Xbox controller?). The Xbox is a unique competitive advantage among players in the tablet space, and Microsoft should play up future connectivity between the two systems.
5. Beat competing devices on price. Microsoft didn’t announce pricing for its two Surface models during its much-ballyhooed launch event. But make no mistake: pricing is critical for the Surface. The Windows RT model should be priced well below the iPad, and the Windows 8 Pro Surface should be priced somewhere between an iPad and a mid-tier laptop. These price points will position the Surface to siphon away market share from iPads and laptops. Pricing is especially important for the Surface’s Pro model, as Microsoft will seek to familiarize business users with its tablets in order to change consumer preferences.
In summary, Microsoft has a better chance at tablet success than many are predicting.
Granted, Microsoft has to get a lot of steps right in order to make a dent in Apple’s dominance of the market for tablets. And there is very little room for error. The first generation of the product has to be amazing in order to convince a skeptical public:
Here’s the how the story ends with the Microsoft Surface: “Zune.”
— Joseph Manna (Joe) (@JoeManna) June 19, 2012
Remember the Microsoft Kin? lol… Remember the Microsoft Zune? lol… Remember the Microsoft Surface? #exactly
— Skylor (@skylor) June 23, 2012
— Eric Y Lai (@ericylai) June 19, 2012
But it’s because of this skepticism that there’s reason to believe that Microsoft will be successful with the Surface. Unlike RIM’s rushed attempt to build a tablet for enterprise buyers, Microsoft has taken a slow, almost plodding, approach. And now the business case for its resulting product is clear. With a device that enables mobile workers while controlling costs, there is evident ROI for IT departments to justify investing in the Surface.
And I believe they will. So despite what you might think, it’s time to be bullish on Microsoft again. Are you bullish or bearish? Let me know with a comment below.
Research in Motion (RIM), maker of the the popular BlackBerry line of phones, is battling through tough times. The company’s stock price is down approximately 80 percent over 3 years in the face of intense competition from Apple’s iPhone and other smartphones running Google’s Android operating system. And just last week, the company released disappointing first quarter financial results, which included decreases in both net income and earnings per share compared with the first quarter of 2010.
And I haven’t even gotten to the bad news yet.
“But RIM Owns the Enterprise Market”
That’s the refrain that you’ll hear from most people in corporate IT during a discussion of RIM’s woes. And to some extent, it’s true (though the overall market share trend line is disturbing). However, BlackBerry’s position as the standard phone for major corporate customers is in jeopardy for a handful of reasons.
First, developers are bailing out on the platform
Apps are perhaps the most significant driver of growth for the smartphones and tablets. Unfortunately for BlackBerry, many of the top application developers don’t even bother developing for the platform. Sure, Facebook, Foursquare and Twitter are there, but many of the more interesting new apps are available only on iPhone and Android devices (such as group messaging and photo-sharing apps).
Worse yet, there are signs that an exodus from the platform began long ago. One of the most high-profile cases occurred earlier this week when Seesmic founder Loic Le Meur announced that his company would discontinue its support for BlackBerry. As an added kick in the shorts to RIM, he then touted the potential of Windows Phone 7 as the best third option for a smartphone (behind the iPhone and Android devices, of course) in this video interview.
Second, commercial trends are driving enterprise policies
It’s no secret that the “consumerization of IT” is underway, with executive leaders demanding IT support for popular smartphones and tablets. Many organizations are responding by implementing “bring your own device” policies that permit employees to access corporate data from personal devices.
Guess which company stands to lose the most as this trend gains steam? It’s not Apple. Or Google. Or Microsoft.
Third, short product release cycles pose an unrelenting challenge
Since the release of the original iPhone in 2007, Apple has released a new version of the smartphone every year. And like clockwork, the iPhone 5 (or potentially, the iPhone 4S) is likely to be released in September of this year. Apple’s release cycle prevents the type of product stagnation that could slow the iPhone’s growth.
On top of that, roughly eighty-three (yes, 83) Android-based phones have been released since early 2010. Let me say that again: eighty-three Android phones in less than two years. While Apple differentiates its products for the high-end segment of the market by featuring simplicity, an “it just works” experience and an abundance of apps, Google is content to fortify its castle by partnering with an array of hardware manufacturers and service providers to gobble up market share among value-conscious consumers.
The relentless innovation from both Apple and Google hurt RIM by offering little time for the manufacturer to change consumer perceptions of its brand. Even an inspiring, radically innovative new product from RIM will have precious little time to resonate with consumers (and more importantly, business leaders) before another shiny new offering from Apple or Google pulls away the spotlight.
Fourth, the the iPad’s penetration into the enterprise has changed the game
While the iPad is commonly perceived as a consumer-focused device, between 65-80% of Fortune 100 companies have adopted the iPad for business use, according to reports. This phenomenon brings with it enhanced affinity for all iOS devices.
By contrast, BlackBerry’s release of the Playbook has been a disaster. RIM recently reduced its sales forecast to a range of 800,000 to 900,000 units in 2011, down from a projection of 2.4 million. Really — who wants a tablet that has to be tethered to a phone?
Living on the Edge
The truth is, all technology companies are just one misread of the market’s direction away from their demise. Blockbuster, for example, didn’t pivot quickly enough in response to challenges from Netflix and Redbox. Google, in former CEO Eric Schmidt’s own words, “screwed up” by failing to react to the rise of social networking (hence Facebook’s ascension as a rival advertising powerhouse). And Nokia reacted slowly as consumer preferences shifted away from feature phones to smartphones (at least in developed markets).
Like Nokia, which has turned to Microsoft’s Windows Phone platform in a fight for survival, RIM may soon be forced to embrace a rival in order to stop its free fall. Already, speculation has resurfaced regarding a potential acquisition by Microsoft.
So will RIM will choose to resurrect its BlackBerry brand through new products, a sale, or a partnership? I don’t know the answer to that, but I do know this: RIM is in serious trouble, and it’s worse than you think. With developers fleeing the BlackBerry platform, consumer preferences driving corporate buying patterns, and product release cycles offering little hope for a sustained impact from new products, the story of RIM’s continued decline will be told through its sinking stock price.