What will Microsoft learn from the iPhone?
Microsoft has been in the mobile business for over a decade. They've been in the specific phone sub-segment since 2002. In fact, Windows Mobile is now on its 6th generation. MSFT also spends an order of magnitude more on R&D than AAPL. So how come MSFT has never once had a phone product, during that entire time frame, that has come even distantly close to matching the consumer and media interest generated by the iPhone - which only just shipped? Indeed, across all of MSFT, the only product that has come close is Windows 95. Let me add a couple of caveats before proceeding further: First, I don't know if the actual iPhone will live up to the likely overdone promise of the iPhone. Second (and related), I don't know how well it will do in the market, though I think they will easily make their unit guidance for the year. Regardless, the iPhone has already had a massive impact. From media, to consumers, and the market (where AAPL stock has recently tacked on another $30B of marketcap based largely on iPhone anticipation and interest), everyone is talking iPhone.
I have my own thoughts on why/how AAPL managed this engineering and marketing triumph. The more important question is does MSFT? Have they even bothered to put together a senior cross-discipline team to study the situation, including how AAPL managed to come out of left field and accomplish it? This isn't just about a new phone. The iPhone highlights issues in R&D, customer needs understanding, UI design, software development, go-to-market strategies (e.g. partner or direct), marketing, etc. These are areas that aren't peripheral for MSFT, they're core - or should be. And MSFT should be the undisputed world leader. They aren't.
MSFT needs to look across the company and answer the question "why can't we do this?". What is so broken that Windows 95 is the most recent example of similar [MSFT] success? Why did Vista, a product that took 3-5X longer to develop than the iPhone, greater than five times as much R&D, and touches several orders of magnitude more people, fall largely flat? MSFT is even having to simplify the downgrade rights from Vista to XP. That's hardly a bullish indicator for adoption. And here is Ed Bott -one of the most knowledgeable Windows writer out there - defending (?) Vista by saying it's like Win95 not WinME (as others are charging), while acknowledging that it will likely require the Win98 equivalent before fulfilling the original promise. Wow, what a ringing endorsement. And it's not just Vista; Similar could be said for Zune, Windows Mobile 6.0, Internet Explorer 7.0, etc., etc., etc..
My guess is that current leadership hasn't bothered with that review. I bet they have already rationalized (to their own satisfaction) why their approach is still the best one, and why the iPhone phenom is of only marginal importance. As a result, nothing will change. MSFT will continue to ship often mediocre products (at least on revs 1 and 2) to lukewarm reviews. They'll keep ramping up marketing launch budgets in the asinine hope that these same products will do well if only they get pushed hard enough. When that fails, as it consistently does, they'll spend their time crafting ridiculously misleading "momentum" press releases in the vain hope that it will turn the tide. Finally, they will cycle through the litany of handy excuses that have become their trademark this decade, including "market saturation", "not every product is a growth opportunity", the "notorious risk-adversity of enterprises", or the multi-purpose catch all: "it's still early innings". MSFT, under current leadership, should be renamed Excusesoft.
I'm not alone in doing the comparison and asking these questions. If you've been following the stock's major YTD underperformance (NAS up ~8%, MSFT down ~2%), and current meltdown, there's good evidence to suggest that many investors are:
FYI, the green line that I've added to the bottom chart highlights money flowing out, along with the impact on the stock in the top chart. FWIW, that long-term uptrend line that I've drawn (purple) had better hold, otherwise it's BOHICA for shareholders. That's somewhere around $28.69 or so, if you're interested. But look for a range between $28.40-$28.80. If it fails, technical analysis suggests that MSFT could eventually crash back to around $22.40. In other words, the Ballmer-led MSFT elevator is headed either to the Mezzanine level, or all the way to the parkade basement again. Getting tired of this yet? If so, when the proxy rolls around this year, send a message once and for all.
Update: An upgrade by Pacific Crest is worth a read and helped generate some buying interest during a pre-holiday shortened session. That lifted the stock back above $30, eventually hitting a high of $30.22 and closing the previously open upper gap in the daily chart (see red lines below). The stock then immediately reversed course (green circle). For now, it managed to hold $30 (with two cents to spare). However, there are several lower gaps still open (red circles) and unfilled gaps that stay unfilled are exceedingly rare for MSFT.
Update #2: July 6th, 2007. Latest Xbox disaster has provided the catalyst to close the first lower gap. Next up, lower gap number two (~$29.47) ...
Update #3: July 10th, 2007. Stock takes out lower gap number two as expected. Next up, $28's.
Update #4: August 10th, 2007. It took longer than expected, but today we are trading in the $28.40-$28.80 range that I called for in the post. In fact, we took out the low end by trading down to $28.31. The stock is currently at $28.54. As I said then, a failure to hold here risks another trip to the basement. The fact that we so easily undercut that range doesn't bode well.
posted by MSFTextrememakeover at
12:49 PM
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13 comments
Or even over the past 3 years:
