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Embracing Change

Embracing Change

Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy. Like many companies in similar transitions, the going isn't always smooth, but if anyone can pull this off, it ought to be the guys in Redmond. I'm impressed with how much they get it -- not just at a high level, but throughout the organization.

What's the world coming to? Microsoft lost money in the software business last quarter -- the first loss in a decades-long string of positive earnings from the world's biggest software company. Sheesh!

Yes, there were extenuating circumstances, but the loss signals the breadth and depth of the impact that the tablet is having on the hardware market -- the iPad tablet, to be precise, and its economy size, iOS-sharing little brother, the iPhone. For a quick slide show on iPad's penetration and adoption check out this presentation from Business Insider.

Last time I asked if hardware was becoming sexy again and why. The answers seem to be "Yes" and "Because tablets have reached a new price point that opens up more emerging global markets to computing."

Tablets and their near kin, smartphones, are defining a global computing platform for the next decade and beyond, promising first-world information access to many people formerly left in the dust.

The writing was already on the wall when analyst firms IDC and Gartner recently documented a stall in the PC/laptop forward momentum. Lower PC sales means fewer operating system sales and all that goes with it.

Microsoft's Mojo

To be sure, tens of millions of units are still being sold this year, along with operating systems and productivity software often bundled in. But growth has stalled as new customers in emerging markets are voting to type on Gorilla Glass over keyboards.

Every paradigm goes through a predictable life cycle, and the computer operating system dependent on hardware sales is another example, not an exception. Microsoft, Intel and others invested heavily in thin, ultra-light laptop machines as the next thing that would protect the franchise and compete with tablets, but they were still too expensive and ultimately not cool enough.

If Microsoft expects to get its OS mojo back, it will need to cajole its hardware partners into really being competitive with tablets.

Right now, everything is going the way of the tablet, and Apple can almost do no wrong. Even when a European judge made a finding in favor of Samsung in a patent dispute with Apple recently, he declared the Samsung gear "not as cool" as Apple's and therefore not infringing on Apple patents. That's just amazing.

Windows 8 comes out later this year, and Microsoft has introduced a tablet of its own, the Surface. The game is far form over, but the latest brush with reality suggests Microsoft might have been prescient in going "all in," as Steve Ballmer said of the company's approach to cloud computing some time ago.

Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy. Like many companies in similar transitions, the going isn't always smooth, but if anyone can pull this off, it ought to be the guys in Redmond.

When I've spent time with the Redmond gang over the last couple of years I've been impressed with how much they get it -- not just at a high level, but throughout the organization. "All in," Azure, and retail stores suggest a company thinking its way through the changes. And analytics and social networks suggest they really get it. Maybe "all in" should be replaced by "we get it," or better, "we get you" -- but not quite yet.

On a cautionary note, getting to the cloud or to tablets won't be enough; this is a business model change that every company has to deal with, and Microsoft has done more than many already. Now, Microsoft's partners have to pick up the gauntlet and evangelize more than ever.

Innovation and Creative Destruction

On Wednesday, Zuora will release a Fireside Chat video discussion that I am participating in. It will be all about the cloud and subscriptions, and I expect an important theme will be the attention that subscription companies need to pay not to selling but to service and ensuring customer happiness.

And, oh heck, while I am talking about myself, I might as well mention that my new book is coming out around the same time: The Subscription Economy - How Subscriptions Improve Business.

While the changes in the industry might be painful for some, they also represent innovation and creative destruction, which is the hallmark of a vibrant economy.

The issue for us is not how to slow down change, but how to embrace and leverage it. Once the election clears out, I think Q4 could be an important turning point as winners and losers get back to the work of inventing the future and making money.


Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at denis.pombriant@beagleresearch.com.


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