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Not Backing Down – Windows 8 and the future of Microsoft: My Exclusive Interview with Adam Hartung Part 1

What would you say in response to the fact that even if everything you said is true, you can’t really say that in isolation because regarding tablets and mobile, up until this point, there hasn’t really been a Microsoft offering in the marketplace for users to compare.

Now that Microsoft is introducing new products into the market and has an opportunity to build on its own install base, isn’t it hard to make definitive predictions since we’re not quite sure how this is gonna shake out?

Adam: OK so this is why I write a column for Forbes and why they asked me to write a column 3 years ago and why I’ve been writing a column for 3 years and why I do it. There is a large body of work that is going on 20 years old studying market innovations and market transition.

Onuora: OK.
Adam: And what we’ve seen is that when you get a market transition the person who comes in and says “Oh I’ve owned the market, I have the install base. Now I have the new product and I will convert everyone to me” — universally fails. Universally fails.

I want to go back to the analogy selected for this phone call which is the one used for printing presses and xerography. So the people who made the printing presses which were being used in the basements of big corporations realized the going was rough. So they went to IBM and said “Look we will sell your machines.

We’re gonna re-brand them and we’re gonna go to our installed base and we’re gonna sell these and we’re gonna sell a million of them because we have the installed base and this is a great product.” And in the end they actually achieved about 2-3% of their goal.

And the reason was the buyers already had positioned them in the old world and they positioned Xerox and its competitors in the new world. When the old guy tried to say “ I’ve got this product” the people said “Eh, we’re not sure about that”. But I don’t see that here. This isn’t where you’ve come to me, I’m not comfortable. I’m gonna have to do a lot of thinking about this to see if you belong in this world. And I’m gonna have to see a lot of experts and have them tell me that you belong in this world and people can be very wrong because you have a branding problem now.

They have a branding issue now. The second thing is how a corporation goes about doing it.

Onuora: OK.
Adam: When you have an installed base and you’re protecting your installed base that is a very different problem than trying to aggressively cannibalize your installed base, right?

Onuora: Yeah.
Adam: So you say “Well, all I have to do is offer the product and because it’s under my brand people will buy it”. And you don’t really aggressively try to cannibalize your installed base because that’s really against your profit model and this is the problem you have with Microsoft.

That’s why Microsoft never got Zune off the ground, never got the Windows mobile phone off the ground. It was because if you look at it there’s nothing inherently bad or anything wrong with it, it’s just the company saying my energy, my time, my leadership is focused on defending my installed base.

I’ll put some energy into this I’ll put a product out there and they don’t stick with it. They don’t stay behind it. This is a very consistent management problem that we see across more companies that are caught in these market transitions. When I take a look at where Microsoft is I say “ OK what did you actually launch with Surface, what you’re trying to tell me is that you’ve got a hybrid, that you’ve solved the great conundrum of the world, that the great conundrum is ‘Do I want a tablet or do I want a PC’”?

Interestingly I haven’t heard anybody say that’s the great conundrum except Microsoft.

Onuora: OK.
Adam: So what I hear when I talk to IT leaders in large corporations, they’re not saying I feel like I need a hybrid device.

What they’re saying is (I call them for CIO magazine, it comes out every two months) and when I’m doing my interviews what they’re saying is “My issue is I need to get everything off of a PC and get it onto a tablet, my Chief Marketing Officer, my Chief Executive Officer, my Chief Operations Officer, my Chief Financial Officer, they’re yelling at me that they want to access the ERP applications, the CRM applications, they want to get to this stuff from their smartphone they want to get their tablet”.

And when they say their smartphone what they mean is the one in their pocket. And the one in their pocket happens to be an Android or iPhone, it’s not Windows.

Onuora: Well OK so that’s true today so I’ll push back a little bit – I mean Microsoft is offering a solution to a problem that consumers haven’t necessarily voiced that they have. However it’s kind of a double standard because if Steve Jobs does the same thing we say he’s a visionary because he’s offering solutions and he’s telling consumers what we didn’t know we wanted.

I’m just saying isn’t it unfair because the jury’s not quite out yet? For all we know the Surface Pro’s going to be a massive hit and there have been some glimpses of success with some of the new Dells and some of the new Asus tablets and the new all-in-ones. Isn’t it a little bit early to say this is not what the enterprise is looking for at this point?
Adam: Alright so here’s where I’m coming in, my job as a columnist and as a writer …

Onuora: Certainly.
Adam: To tell people that if you can start to read these tea leaves early rather than later you’re far better off.

Onuora: OK
Adam: The model for doing this kind of analysis is built on a lot of research. I’ve personally done over 20,000 cases and what this model gives us is keys for understanding how to read early trends and the behavior of corporations and the behavior of consumers. Now I can certainly wait another year and write a column on the results of Surface. But think about it, it takes a lot more courage to say it now doesn’t it?

Onuora: No, it does, but I wonder what the model would have said about something like Apple before Steve Jobs came back. I mean…
Adam: Oh I have a whole presentation about that. Before Steve Jobs came back Apple was dead, right?

Onuora: Correct.
Adam: Steve Jobs called up Microsoft and got them to loan him $250 million to keep them out of bankruptcy on the basis that if Apple went bankrupt then Microsoft had no competitors and it would leave them wide open for the anti-trust guys. So he takes the Microsoft money. Now everything that he’d ever been taught in business is now in play. Money should be poured into improving the Mac so they can remain competitive, right?

Onuora: Yup.
Adam: He did not do that. In fact he cut the number of Macintoshes by 2/3; he cut their R&D or product development expenditures on the Macintosh platform by 75%. He took that money and put all of it into an entirely new market saying we have got to go mobile.

And then they went down that road, had their own strategy and vision toward 2010 and that let them off toward the mobile device market which they got into. What he did was he was actually ready to walk away from the Mac platform and say we’re just gonna do enough to maintain it, I’m not going to try to go wholesale against that because my likely user is very low.

And he directed his money elsewhere. That’s what I attack Microsoft for. Two or three years ago when they realized look this is where the tablets were going and this is where people are headed they could have aggressively launched some kind of a program around phones and tablets.

They didn’t.

Whether you like that or not the one thing that they did have on their plate at that time which was a massive win was Xbox.

Think of all the money they have put into Windows 8; If they had taken half of that money and said we are going to create a vision in which in this future everybody is part of a network and then stuck that virtual existence inside of phones, in conference rooms, inside corporations and said this is gonna happen next to the Cloud so that the mobile device world will be able to connect up to television, radio as we know it, and it will connect up to applications and apps and whatever central device.

This central device will be amazingly smart and colorful and you’ll be able to talk to it and it will be able to do vision transformations and all kinds of things and we’re gonna call it Connect. They would own, or leap frog the tablet world and now you’d have a product in Xbox and you could leap frog ahead of this whole argument I’m having with you right now.

Onuora: Yeah but …
Adam: …what people are hoping to be Android TV or …

Onuora: No no. Then people would say yes Microsoft spent all of this time working on that but Apple and Android would have all the tablets to themselves and yes this thing Microsoft has in the homes is really cool but now they don’t have a tablet, they don’t have a Surface, they don’t have a Windows phone, they spent all their R&D money on this device which might or might not work.

Can Microsoft really win if you look at it that way?

Adam: No that’s not true ,not true. I didn’t say put all of your money there. I say put half your money there and with the other half instead of developing a whole new Windows 8 platform you actually put a lot of serious money into some kind of a Windows 7 phone and a Windows 7 tablet.

You put a lot of energy and money into that and you take that in half so that instead of trying to develop a whole new platform that becomes this hybrid thing that’s a fairly complicated interface with touchscreens and all that you say “Look I’m gonna play in one marketplace a defensive game, a defensive hold on my Windows business.

Now I’m gonna get some tablets out there and I’m gonna get some smartphones out there and I’m gonna play in that game and I’m gonna try and play for a profitable third”. Not being unprofitable but playing really hard and really smart and going there, but my strategy, my longer term strategy is to come around the end of this with an ability to understand enterprises and how enterprises work and thinking of the home as an enterprise and cities as enterprises and all of that, and I’m gonna end up with a sort of Xbox in the center of all that and this Connect thing that I’ve started developing can be like the kernel of the thing that could set everybody free.

Now in 2 or 3 years I leap frog against these other guys.

Onuora: OK so that’s one way to look at it. How about if we look at it this way and say Microsoft has a different strategy, and I’m just playing devil’s advocate here.

We all saw what Windows 7 looked like on mobile platforms and it just wasn’t pretty.

Rather than try and spend R&D money on fixing it and retrofitting that and making it acceptable, how about we move towards a new ecosystem? An ecosystem with tablets, phones, and the Xbox, Kinect,  Bing, and Internet Explorer, and how about we move aggressively to create a new Microsoft ecosystem where all devices talk to each other and using your Microsoft ID you’re able to move seamlessly between the corporate world, the enterprise, the home, you know – recreational activity, professional activity, etc. and since Microsoft is behind all these things then you’re going to have a smooth ecosystem that’s going to be more valuable with time.

Adam: OK now let me tell you why that’s a bad idea and I wrote a couple of columns about that in which I talked about the bet the company strategy.

Onuora: OK.
Adam: Now what you’ve just described to me is a bet your company strategy which says that I am going to now bet the company on keeping my platform alive and what I’m going to do is I’m going to claw over the top of these other competitors to take the users that I might have a risk of losing and keeping them in-house.

So it becomes a defensive strategy. So what I’m gonna do is I’m gonna sustain what I have by extending it. It’s called defend and extend.

Written by Onuora Amobi

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My Interview with Adam Hartung – Introduction

Not Backing Down – Windows 8 and the future of Microsoft: My Exclusive Interview with Adam Hartung Part 2