No my friends, I am not kidding ...
Let me tell you,
When the new double knits first came out,
I was NOT impressed ...
But as you can see ...
These pants I'm wearing are double knit.
And they stretch in all the right places.
They are ... The most comfortable.
Frank Zappa - Eddie Are You Kidding?
The Microsoft loss has been two and a half decades in the making. Although in many ways the minuscule loss reported by Microsoft was not so much a real loss as it was merely "juggling the figures" ... It was "an accounting loss" just as the corporate spin doctors would have us believe. And of course, when one juggles with figures that are on the same scale as Microsoft's total worth, or the national debt, you can be confident that we are talking extremely large figures ... So large that they are incomprehensible to regular citizens such as you, dear reader, or even to your humble blogger, who has only nouns to describe such mind-boggling numbers rather than any intimate understanding of them ... And truth be known the same could probably be said for most of the accountants who deploy these astronomical quantities so glibly.
Apple and Google, two other entities that deal in incomprehensibly large numbers, also reported lower profits than expected. And in many ways the reasons that Apple failed to meet expectations are similar to the reasons that Microsoft reported a loss. Both these titans are clearing the decks ... Girding their loins, so to speak, for the great iPhoney war. And so for that matter is Google.
However, there is a paradigm of difference between the way the two giants, Apple and Microsoft are preparing for the conflict.
Microsoft have declared a loss because they allowed, in advance, for the costs of the Windows 8 upgrade, which they plan to almost "give away". It is the funniest of funny money. Possibly they hope that this pre-emptive adjustment will make next quarter look better? Microsoft have also spent large amounts on their online ventures ... Most of which have failed to make any substantial returns.
As Microsoft continue preparations to roll out a new interface, Windows 8, which will, they hope, unify the mobile and desktop markets, they might not have addressed the principal risks involved with this tactic ... Which is not just financial. If Microsoft fail to move as much product as they hoped this could result in some further losses of (larger) eight figure amounts ... But that would still be chicken feed for Microsoft ... The more important risk is that Microsoft may "upset" some OEMs ... And they may inconvenience some portions of the vast mooing herd of the Microsoft desktop user base, who may be somewhat less than impressed with the new Windows 8 double-knit trousers.
And if a Windows 8 failure to launch has negative effects on Microsoft's desktop monopoly, this could turn from juggling the figures to shuffling the deck-chairs.
Apple, on the other hand, have taken a hit to their bottom line because they have shaved the margins on the iPad hardware in an effort to push them out the door. Rather than demanding their usual "premium for quality", Apple have pushed into the tablet market so aggressively one gets the impression that Apple don't only wish to dominate the tablet market ... They intend to "own" it. If Apple have their way the brand name "iPad" will become a regular noun for hand-held portable devices, indistinguishable from any generic noun in the minds of consumers... Just as the brand name "Google" has become a verb meaning "search" and the region name "Champagne" has become a noun for "fizzy alcoholic beverages" ... And if Apple continue to move product at their current rate there will eventually be some corks popping from fizzy beverage bottles in Cupertino ... Because dear reader, by the time Microsoft start shipping in earnest there may not be many potential customers left on the planet who don't already own an iPad, much less any who want to buy a Windows 8 device.
It seems that Apple and Microsoft have different strategic approaches to the iPhoney war. Apple's strategy seems to be one of careful and comprehensive preparation and then a massive and unrelenting campaign that builds on the strength of their existing position in the mobile market in order to establish overall market superiority ... And your humble blogger must confess it's difficult to find anything that resembles a strategy in Microsoft's haphazard approach. Several online commentators have mentioned the fact that the August issue of Vanity Fair carries a less than complimentary article about the ongoing Microsoft SNAFU, which focusses on Microsoft's senior management, and lays the blame squarely at their feet, in general, and at the heavy-booted clod-hoppers of one Steve Ballmer in particular.
In many ways Steve Ballmer seems to be the worst possible CEO for Microsoft and yet in another sense he is the best they can get. This is how an old new tech company concludes their rise to prominence when they must switch from being disruptive innovators to protecting a virtual monopoly.
Nevertheless Microsoft has such considerable assets that they are unlikely to disappear from the IT and communications landscape. If Microsoft are humiliated, the lessons in humility will be "good" for Microsoft and for the entire sector ... One only has to consider the benefits (and costs) we all derived when IBM learned their own lessons in humility last century at the hand of one Citizen Gates.
And your blogger, the world's most humble, has considerable expertise in the area of humility. And in his humble opinion Microsoft (and the CEO Mr Ballmer) are guilty of hubris. The faith they have in their own product, Windows, is quite misplaced. Since its inception Windows has been a compromise of various borrowed ideas. The performance boosts in the last decade have mainly been derived from improvements in hardware (especially video hardware). Already there are some ominous rumblings about the speed of the video interface on Windows phones ... This after Microsoft have dumbed down the appearance of the interface as much as possible. Xbox live which has established a sizeable market share and (surprisingly for Microsoft) a good reputation for customer service, is nevertheless often beset with niggling little problems with their own servers ... Of course Xbox Live deployed Windows servers throughout their entire infrastructure.
It seems to your humble blogger, that if Microsoft really wanted to get into the phone business, there were quite a few phone companies ... Motorola (which was snapped up by Google) ... Possibly Nokia (which Microsoft made a deal with) ... And there are quite a few open source operating systems (such as Nokia's MeeGo or Blackberry OS), that could have been quickly purchased and with an injection of funds brought up to speed in order to compete with Android and iOS.
Making a pragmatic choice to get something out the door which actually works, fixing the broken security on their existing platforms and improving the performance and reliability of their own back-end would seem obvious decisions for times such as these ... But such choices could never be on the table at Microsoft HQ. It is an integral part of Microsoft folklore that such snap decisions would be a knee-jerk reaction similar to the wrong turns taken by IBM last century, which eventually led to the unravelling of the great empire, and the rise of Microsoft ... And it is this folklore, the underlying faith that Microsoft remains a great 21st century powerhouse of innovation and business-sense, that is the basis of their hubris, combined with a quiet confidence that Windows is the greatest universal computer operating system the world has ever known and capable of scaling simultaneously in both directions ... Three core beliefs not widely shared outside of Redmond.
There really don't seem to be many other options for Microsoft. If the opponent were anyone else but Apple they could try reaching for their lawyers. But Apple is probably one of the most trigger-happy litigants in town ... And even Microsoft is not going to risk Patent Armageddon ... Unless they have suddenly started to subscribe to the "Madman Theory".
Microsoft is not the only technology company smarting over the cruel mobile disruption. Facebook shares continue to sink inexorably. And the size of the investment in Facebook was so large it could eventually have an effect on global markets.
Unlike Microsoft's problems which have been slowly brewing for decades, the Facebook disconnect has been a recent development. Facebook has grown so rapidly and to such an extent that immediately before the IPO, many institutional investors made the mistake of estimating that Facebook was now "too big to fail" ... A remarkable miscalculation which ignores recent global financial history.
Without doubt Facebook's database is huge. But the estimated userbase, like the estimates of their total worth are a little rubbery. It has been claimed that there are 10 million active Facebook users in Australia and 800 million active users world wide. Considering only the 10 million users in Australia, you might conclude that this is just under half the population (22 million). However only 67 percent of the population are aged 15-64. Of course there are a few kindergarten and primary school Facebook users. But let's assume that Facebook users do mostly belong to the age group that Facebook's official policy states they should belong to (13+). It seems fair to assume that Facebook users would mostly come from the 15 - 64 age category. In which case we are supposed to believe that three quarters of this demographic are "active" Facebook users ... This figure seems a trifle high ... And your humble blogger can't help wondering just how "active" all those 10 million users are ... Especially considering that many "users" sign up just to be able to view some photographs that they are told they "must join" Facebook in order to be able to view ... Or to contact some organisation that has down-sized (and/or outsourced) the support desk and now "invites" their customers to "follow" them on Facebook/Twitter ... etc.
Certainly in Australia's case it would not seem possible to inflate the figures much further ... So where will the future growth be?
Facebook also seem to have some problems with their data sharing options (often referred to as "privacy settings"), which seem to change more often then their estimated worth ... And generally they change in the direction of increased complexity and Facebook providing extracts of the data to third parties without their users' informed consent.
The iPhoney war is having a major impact on Facebook also. As they scramble to increase user lock-in and perhaps create their own browser ... Facebook are still trying to make their business model work with mobile devices.
To date Google seem to be sticking to their original plan ... The "Open Road" ... And even though Google don't claim to have anywhere near the same number of users for their Gmail and Google+ services as Facebook does, they seem to be gradually gaining ground. Google also alter their data sharing options (aka privacy settings). However the rate of change appears to be "glacial" compared to Facebook. And generally the sharing options are extremly simple compared to Facebook ... A user can ... Share with no-one (the default). Share with anyone who has the link, Share with "circles" or Share with everyone ... And after all how difficult and complex should it be? Facebook can only hope that their users don't start asking the same question.