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

Onuora: OK.
Adam: And in Clayton Christensen’s language it’s called sustaining. I’m looking for a way to continue to sustain the install base by trying to move them forward in a way that’s nice and easy and pretty and comfortable for them.

Onuora: OK.
Adam: What I will tell you again is that we have a large body of research now that shows that we don’t have any examples of that working. None. What we see is that once users transition markets, they say the old market is the old market and the new market is the new market.

So let me give you another sort of analogy but a lot of people click to this. And that is the idea that at one point in time you had manual transmissions in cars and then we had automatic transmissions in cars, right?

Onuora: OK.
Adam: You’re probably aware that there were hybrid transmissions that were made.

Onuora: Sure.
Adam: You’d get in the car and you could operate it as sort of a mix – they were clutchless, you had semi-automatics, but there was no clutch but you still had to move the gears

Onuora: OK.
Adam: And then we have the hybrids where you actually have it in drive but you can have it in auto and you can shift with it right?

Onuora: Sure.
Adam: Those hybrid transmissions were never successful because people either drove a manual or an automatic and eventually the market became automatic, 99.9% automatic.

Onuora: Well yeah but I mean that’s a great example because the entire world is aware of automatic transmission but I mean I’m originally from Africa and I’ll tell you that great portions of the world know about automatic cars but they still prefer to use the stick shift.
Adam: And you do know and I’ve seen this in comments to me as well. Nobody in America in this marketplace is gonna win based upon trying to sell a lot of products in Africa and India.

Onuora: Well I’m just talking about…
Adam: Come on be practical with me …

Onuora: No I’m not talking about a percentage of the world’s cars. You used an example saying we started out in the world with stick shifts and then built “superior” technology called automatic transmissions. I’m saying logically well, everyone should go to automatics and say “why do we need stick shifts anymore?”.

But even in a lot of the markets and territories where automatic cars are available, people still make the choice to go with stick shift.

Adam: That’s right but you don’t see GM, Chrysler, or any major manufacturer as a winner doing that. And that’s the problem you’ve got. Microsoft is so big (and this is the part you come back to), Microsoft is so big that it has to win in a developing world that drives the vast majority of profitable high end volume.

You have to win there. You can’t say that you’re gonna fall back on this other market because there’s not enough margin in it. You see Microsoft’s got a business model and they have to make a certain amount of money and you can’t fall back and say “Oh great I’m gonna sustain this company by selling into Africa or another low-priced, low-margin market”.

This came up when I said RIM was dead and I got slaughtered with comments and emails from people in India telling me how nobody in India could afford an iPhone and how everybody used a Blackberry and therefore RIM would live forever.

Onuora: OK.
Adam: The problem is no, that’s not true. Because there’s not enough profit in it. Go back and look at the profits at Microsoft. They’re completely dependent on Windows and Office profits now. That’s the “defend our company” problem.

You say I’ve got to make Windows 8 work because that’s where all our profits are. Five years ago I didn’t sit down and say look I’ve got a division called Entertainment and I’ve got to make that wildly successful and wildly profitable. I’ve got a division called Online and I’ve got to make that wildly successful and wildly profitable.

You know, I’ve got a division called Servers and Tools that needs to be wildly successful and wildly profitable. Of those three, Servers and Tools is doing the best by far.

Onuora: Sure.
Adam: There’s no where near enough profit in that to keep Microsoft alive unless Windows 8 and Surface match the kind of sales growth and profitability that you had historically in those units. So if you get a slip in Windows 8 and Surface sales, the underpinnings of the profit model for the whole corporation called Microsoft suddenly slides out from under you.

And that’s why I put those bullets in there when I said here’s what I see happening. Very quickly your profits start to evaporate and at that rate what do you have to do? You’re gonna have to do layoffs. We already know that the profit per employee at Microsoft is far lower than the competitors just mentioned including Apple and Google.

Head over to check out Part 2

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

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