Tech Industry:APPL vs MSFT vs YHOO Wars
Let's take a look at the big tech news from the last week or so (deferring the HPQ/EDS discussion for now) and focus on the APPL vs MSFT and MSFT vs YHOO campaigns. In both of which there was some big news everybody covered and some that may have passed you by. In an earlier post/survey (WRFest 27Apr08(Tech Ind): Innovators, Survivors & Also-rans) we introduced some ways/weighs of thinking about innovation and typical patterns. You may want to refer back to that as here we're going to build some more charts to dig into some other patterns to set the stage for our discussion. You might also find reviewing the earlier discussion (Sailing Into the Storm: From Execution to Innovation) of innovation a worthwhile review, especially if you buy the argument that Innovation is not just an issue in the Tech Industry but is both a general requirement and the biggest challenge beyond Execution facing all businesses. And one that most are failing at. We think the framework for analyzing what works and is required vs the typical barriers applies to P&G just as much as to MSFT...a view which, judging from public statements and observable behaviors, P&G agrees with.
So consider the chart at right which shows how many companies face the "Renewability Challenge". Chrysler is almost the perfect poster child, along with MOT, of a company who lurches from breakthru hit to hit and hopes it survives the downturn. That behavior is apparantly deeply seated in its' culture. What you'd like to do is have good strategy, translate that into excellent and on-going execution and, on that foundation, build up a repeatable capability for innovation. And better yet embed that capability into the core of the Company. A path that Lafley at P&G appears to be well along on after close to seven years of hard and sustained effort.
There are two big questions. First, can you get the Innovation process going on a regular and speedy cycle show that new products and offerings begin to take off before the old starts into decline. And second, and as or more important, is the question of what path is the Company on. That is are innovations moving the company forward, marking time or eroding despite apparent cleverness.
When you think about the Big Three here you reach very different conclusions. Apple appears to have created a sustainable culture of Innovation with one hit following another. Admittedly largely due to Steve Jobs...yet none of the major innovations Apple has produced are from a one-man band but represent the efforts of entire teams. And even more interestingly, in a rather Disney-like fashion, Apple is beginning to see cross-feeds and synergies. The iPod effort led to the iPhone which was and is a major breakthru in the entire Telecom business model. Both together are causing a rapid growth in Mac sales. Even more importantly big business is beginning to give serious consideration to Apple computers. A critical strategic enabler is a brilliant decision on the Operating System which is modular and scalable. All Apple lacks now is a portfolio of small business applications along with a good development platform. That would allow them to become a major player in the empty dumbell space of ill-served SMBs. (WRFest 2Mar08(Technology): Small to Large - IT Industry Structure)
In contrast MSFT has not only failed in its Yahoo acquisition - which you may recall we thought was a disaster from the get go.(B2C Wars:Yhoo/MS Merger - Disaster in the Making ?) But it really hasn't had any major successes in any of its' new endeavors in years. Instead it's milking the cash cows and monopoly positions it enjoys in OS share and Office Suites. And doesn't appear to have made much, if any, headway in the SMB space. Largely we're given to understand because of a lack of cultural understanding of the applications development process. Now apps are different from middleware, culturally as well as technically. Yet at the end of the day MSFT's core competence MUST be software development. Yet we ended up with a new OS (Vista) that was grossly de-featured from the original innovations promised in Longhorn, has been rather badly recieved, even resisted as it doesn't provide significant advantages over XP and throws open the door to competitors. Particularly in the business marketspace.
How 'bout that YHOO ? Well after the initial breakout as the most successful portal,with a business built around display advertising it failed to find a way to grow that business. Terry Semel was brought into to provide a little adult supervision, which he did and effectively, but his "new media" initiatives, which presumed that increasing the portal attractiveness and thereby number of eyeballs, both built on the display advertising theme and failed. Meanwhile of course GOOG's wild, and unexpected, success with search-based advertising blind-sided them completely. So what does Yahoo do now ? So far it's failed to take its' huge footprint and sustain it, failed in developing its' own superb search engine (though admittedly with major improvements) and faces an incredibly daunting uphill battle given Google's share, penetration and street cred. Nor can it tell us what it wants to be when it grows up.
Looking at the chart and the three different timepaths illustrated we could just about assign names to each path: Apple, Microsoft and Yahoo. These interesting times are really tough. From a stakeholders perspective you'd have to argue that Apple has found a sustainable path that appears to make it a great place to work but one that's more than fully valued in the markets. That MSFT is sufferring from Red Queen syndrome with major investment after investment that have not succeeded in major incremental growth opportunities. Which makes it an intermediate-term value play and a long-term question mark. For Yahoo the future is now - they appear to be locked into downward path that may metastasize into a death spiral if they don't pull themselves together, execute enormously better and deliver value to existing users/customers and find new paths (vistions, value props, strategies, business models) forward. At best this is a "turn-around" opportunity but it'd take time, money, blood and enormous effort.
APPL vs MSFT
Sun Microsystems' third-quarter loss stuns Wall Street Wall Street expected Sun Microsystems Inc.'s global sales base to help it weather the U.S. economic slowdown and turn a profit in the first three months of the year. Instead, the Santa Clara-based server and software maker stunned investors Thursday by reporting a loss in its third quarter, caused in part by sagging sales to U.S. consumer-oriented companies that are putting off big-ticket spending for better times.Sun's shares were quickly punished, dropping almost 15 percent in after-hours trading. The company also forecast flat revenues for the fourth quarter and revealed plans to jettison between 1,500 and 2,500 jobs as it tries to snap out of a sudden financial funk. Sun said after the market closed Thursday that it lost $34 million, or 4 cents per share, in the three months ended March 30. That's down from a profit of $67 million, or 7 cents per share, during the year-ago period.The results for the latest quarter include costs of 4 cents per share from Sun's $1 billion acquisition of open-source software company MySQL AB, a purchase that gives Sun a foothold in the rapidly expanding market for database software for Web-based companies.
How Apple is preparing for an iPod slump Still, the number of iPods sold in the quarter grew only 1 percent from the same quarter a year ago. And sales of the low-end iPod Shuffle have been falling sharply. In response, Apple lowered the price of the 1-gigabyte shuffle from $79 to $49, helping to stanch the decline. Apple executives speaking on a conference call Wednesday afternoon gave few details, as is their custom. For some companies, a mature market and downward pressure on prices could lead to a nasty death spiral. But Apple has used its amazing six-year run with the iPod to nurture enough new business lines that it will be able to withstand a collapse in the MP3-player market as well as can be imagined. First of all, it has a continuing revenue stream from the iPods that have already been sold because of the iTunes Store. Apple sold $881 million worth of music and accessories in the last quarter. Second, Apple has created product upgrades that are so different that they may well appeal to a significant number of iPod users. The iPhone, of course, is a product bundle that –- if you want it — is completely different from a standalone iPod. Third, and perhaps most significantly, Apple’s entire adventure with the iPod is helping it sell computers, although the magnitude is impossible to calculate. Apple sold 2.3 million Macs in the quarter for $3.5 billion. That is an increase of 51 percent by units and 54 percent by dollars. Not so bad when the economy is more than a little shaky. Apple’s computer sales have been growing 2 to 3 times as fast as the overall market. But this quarter the company says it grew 3.5 times faster than the PC market overall. Apple’s retail stores are part of this success story, and they sold 458,000 Macs in the quarter. I don’t think these stores would be as mobbed with tourists and other gawkers if they just sold computers and not iPods and iPhones as well. When we look at all the companies that have stagnated along with the products that made them successful — from AOL to Microsoft — Apple stands out as one company that has been able to flip its business forward so well that it is in a great position to thrive, even if its iPod problems become more than little.
The Mac in the Gray Flannel Suit Millions of consumers are seeing the Mac in a new light. Once an object of devotion for students and artists, the Mac is becoming the first choice of many. Surging demand for the machines led Apple to predict revenues will rise 33% in the second quarter, to $7.2 billion, even in the face of an economic slowdown.What's less obvious is that the enthusiasm is starting to spill over into the corporate market. It's a people's revolution, of sorts, with workers increasingly pressing their employers to let them use Macs in the office. In a survey of 250 diverse companies that has yet to be released, the market research firm Yankee Group found that 87% now have at least some Apple computers in their offices, up from 48% two years ago. The iPhone may be Jobs' entrée into corporate offices. It's the one product for which Apple has created an explicit plan for reaching corporations. And it plans to deliver a software upgrade in June that will let the iPhone work with popular corporate e-mail systems such as Microsoft Exchange and allow customers to create their own customized iPhone programs, say, for checking inventory or logging expenses. Apple says more than 160 major corporations are testing the software. Apple is getting help from an unlikely rival: Microsoft. Vista, the latest version of the software giant's Windows operating system, looks like it could turn out to be one of the great missteps in tech history. Not only does it lack compelling new features, but analysts say Vista requires companies to buy more expensive PCs, incur hefty training costs, and to deal with maddening glitches. About 90% of office workers still use its previous operating system, XP.
- Apple Suits Up for Business: Companies are starting to give in and get Apple computers for employees. Andy Hargreaves, of Pacific Crest Securities, and Arik Hesseldahl, of BusinessWeek, discuss.
Microsoft's Vista problem Microsoft keeps insisting that Windows Vista is a winner, but the questions keep mounting — and Thursday’s quarterly report only added to the doubts. Revenue from the company’s so-called client division — PC operating systems mainly — came in at a bit under $4.03 billion. That was about $300 million less than most analysts had expected. It only makes sense that with the economy weakening, corporate technology managers are pulling back from plans to upgrade to Vista from the previous version of Windows, Windows XP. An IDC survey of 300 chief information officers, published earlier this year, found personal computers at the top of the list of hardware spending that companies would cut back on in an economic slowdown. In software, spending on operating systems — like Vista — and Microsoft’s Office suite of productivity programs would be the first to be put off, they said. Vista, given the more powerful processing power it requires, represents both a hardware and a software upgrade. No surprise, then, that there has been a rising chorus among corporate technology customers who want Microsoft to keep licensing Windows XP, with its less-demanding hardware requirements, beyond the phase-out date for most new licenses on June 30. InfoWorld’s “Save Windows XP” campaign, begun in January, now has collected more than 160,000 signatures to its online petition.
MS/YHOO War
Microsoft Abandons Its Yahoo Bid After Disagreement on Price of Takeover
Microsoft's Failed Yahoo Bid Raises Pressure on Ballmer for Plan on Google Microsoft Corp.'s decision to drop its pursuit of Yahoo! Inc. increases the pressure on Chief Executive Officer Steve Ballmer to make his money-losing Internet business succeed against Google Inc. Ballmer's bid for Yahoo, the most-visited Web site, signaled that Microsoft was making little progress against Google in Internet search advertising, said Charles Di Bona, a Sanford C. Bernstein analyst. Ballmer withdrew his bid over the weekend after Yahoo refused a sweetened offer of almost $50 billion, leaving investors asking what his online strategy will be. ``They've got to come out sooner rather than later with a pretty well articulated vision,'' said New York-based Di Bona. The danger for Microsoft is that Google, owner of the most popular Web search engine and winner of the most online advertising dollars, will expand its dominance while Ballmer plans a new course. Google gained 10 percentage points of market share in Internet queries since June, providing 59.8 percent of the searches done in March, according to researcher ComScore Inc. in Reston, Virginia. A Step Back for Microsoft
Yahoo CEO facing possible rebellion after spurning Microsoft Yahoo Inc. Chief Executive Jerry Yang is convinced that the company he started in a Silicon Valley trailer 14 years ago is worth more than the $47.5 billion that Microsoft Corp. had offered for the Internet pioneer. Now he may only have a few months to convince Wall Street that his rebuff of Microsoft's takeover bid was a smart move -- and if he can't, analysts won't be surprised if Yang is either replaced as CEO or forced to consider accepting a lower offer if Microsoft comes knocking at his door again. Disillusioned shareholders are bound to question whether the rejection of Microsoft's sweetened offer was driven more by emotion and ego than sound business sense.Despite such negative sentiment, Yahoo shares are unlikely to immediately fall back to their $19.18 pre-bid price, partly because some investors may still be holding out hope that the software maker will renew its takeover attempt if Yahoo continues to struggle. Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle on Saturday to inform Ballmer that the company wouldn't sell for less than $37 per share -- a price that Yahoo's stock hasn't reached since January 2006. Analysts and investors were left to wonder why the two sides couldn't compromise at $35 per share.