In Defense of Reality: Premature Ruination
Some call me a contrarian. Others call me a glutton for punishment. And yet some even call me the pompetous of love, but that’s a tale for another day. Regardless, I am not someone who takes a claim like “Company X is a failure” lying down, especially after seeing how far my favorite company has come in the last fifteen years.
An article recently made the rounds declaring Windows 8 and Windows Phone 8 as failures, stating that Microsoft is not only unable to compete in markets currently dominated by Apple and Google, but that it has begun its rotation around the drain.
Microsoft has gone from a position of overwhelming power in software and games to one where they have to pay developers to port. This is usually the death knell for a platform, and most developers are already looking away to greener pastures. The strongest draw for consumers died with Windows 8, and pay to play is not sustainable even with Microsoft’s deep pockets. The sales of products will never justify third party investments at this point, without Windows 7 and earlier compatibility, there is no market.
So, Microsoft is struggling to find developers to write apps for its new platforms, namely Windows Phone 8 and Windows 8. It’s also losing market share to Apple, as Apple is the only company consistently growing in the PC market. This story sounds familiar. Where have I heard it before?
Ah, that’s right: TIME, January 23, 1996:
The smaller Apple’s market share gets, and it’s now at about 10 percent, the less appeal it has to software developers.” As a result, Apple is finding it increasingly difficult to keep up in a market that places a high premium on new software applications. Jackson concludes: “That doesn’t mean that the Mac operating system will disappear, but it may mean that the Apple company will disappear.”
We all know what happened after that. Steve Jobs came back, resurrected his company, and grew it into the behemoth we all think we know and sometimes love when it’s convenient.
Microsoft is not Apple. No company is like Apple and no CEO — especially Ballmer — is like Steve Jobs, but pundits are writing companies’ obituaries well before the doctor calls the time of death.
Here’s a little perspective:
Apple’s sales figures for fiscal year 1996 were $9.83 billion with a net loss of $816 million. That was down from $11.1 billion in sales and up from $424 million in losses the year before. This was the time when analysts and industry insiders were declaring Apple “dead in the water” and unable to regain footing in a Microsoft-dominated computing landscape.
Microsoft’s earnings for fiscal year 2011 were as follows:
For the fiscal year ended June 30, 2011, Microsoft reported record revenue of $69.94 billion, a 12% increase from the prior year. Operating income, net income, and diluted earnings per share for the year were $27.16 billion, $23.15 billion, and $2.69, which represented increases of 13%, 23%, and 28%, respectively, when compared with the prior year.
Apple’s revenue adjusted for inflation would’ve amounted to $13.63 billion, a whopping $56.31 billion less than what Microsoft made last year. We can joke about the Surface RT’s “modest sales” and how the iPad is killing competitors, but don’t mistake Surface’s initial bombing for a complete failure by the company.
As of November 27th, Microsoft had sold 40 million Windows 8 licenses to customers, businesses, and OEMs. Windows has always been Microsoft’s big money maker and it looks like that trend is continuing, even in an increasingly mobile-dominated world.
Obviously, the company has serious inroads to make in mobile and buying Nokia was a good start. Now it has to gain support from both carriers and developers to make Windows Phone 8 appealing for customers. Otherwise, articles like the aforelinked “death knell” piece will become more relevant as our computing behaviors shift away from the desktop and into our pockets.
But let’s turn our attention to another company consistently teetering back and forth on the edge of a cliff erected by armchair CEOs: RIM.
James Faucette of Pacific Crest Securities told investors that the long-delayed OS is unlikely to be met with real enthusiasm and, in all likelihood, will fail.
“We believe BB10 is likely to be DOA,” he wrote, and effectively advised RIM shareholders to cash in their chips while they still can.
“We expect the new OS to be met with a lukewarm response at best and ultimately likely to fail,” Faucette added.
Ten years ago, PCs were not nearly as prevalent in households and businesses as they are today, so for Apple to command roughly ten percent of a growing market was quite a feat, especially considering its pre-determined demise prior to Jobs’ return.
RIM’s story is actually worse than Apple’s:
Research In Motion Ltd. (RIMM) fell the most since June after the BlackBerry’s U.S. market share shrank to 1.6 percent, hurt by Apple Inc. (AAPL)’s iPhone winning more customers.
The stock dropped 11 percent to $10.72 at the close in New York, the biggest decline since June 29. While the shares have rallied more than 35 percent in November, they are still down 26 percent this year.
For RIM to sink in market share to 1.6 percent of a potential consumer base several hundred million strong is dismal, but RIM, like Microsoft, has only itself to blame.
First, RIM attempted to compete with the iPhone with its BlackBerry Storm, which turned out to be an abject failure. Then it did its best with its “iPad killing” PlayBook tablet. Guess who’s still standing? Those misses, combined with the loss of its co-CEOs, BlackBerry 10′s repeated delays, massive layoffs, as well as enterprise clients and government agencies giving up their BlackBerry fleets in favor of iPhones and Androids did immeasurable damage to the once-great Canadian device maker.
The third quarter 2012 results tell the tale:
RIM released its fiscal Q3 2012 earnings report today and although the numbers are dismal, the company remains chipper about what lies ahead. Profits fell to just $256 million with a revenue of $5.2 billion, just shy of the projected $5.6 billion for this quarter. These numbers are down from $329 million in profit from the previous quarter and $911 million from the previous year.
It sounds like I’m being hypocritically harsher on RIM than I am on Microsoft. Joshua Schnell sent out a tweet several weeks ago related to the topic:
I have a hard time bagging on RIM when companies like Apple were in the exact same spot at one point.
I would have a hard time, too, except Apple had a hell of an ace up its sleeve in the form of Steve Jobs, Jony Ive, Scott Forstall, and the NeXT development team. The difference between Apple and RIM is that RIM’s former management were not highly regarded prior to their exit.
One might think Steve Jobs wasn’t universally liked and that he almost ran Apple into the ground, so his firing was the best thing for the company at that time. This Fortune article from 1985 says differently:
Many insiders are shocked by his removal; they fear Apple has lost the spirit and vision that made it into a business phenomenon. Says one: “They’ve cut the heart out of Apple and substituted an artificial one. We’ll just have to see how long it pumps.”
It pumped for quite awhile before Apple purchased NeXT. What followed was a series of mixed reactions at Jobs’ decisions, including getting cheered and booed at Macworld ’97 for getting Apple involved with Microsoft, and this gem from Stewart Alsop at Fortune:
You can’t justify it. Apple did precisely the wrong thing. Now the only future for the company is to get smaller and smaller until there’s nothing left. In fact, the only sensible conversation to have about Apple is the one in which you argue about how long it will take to die.
Jobs also sold 1.5 million shares of Apple in 1997, which sent the stock tumbling to its lowest point in 11 years. Some industry analysts believed he’d lost faith in the company he’d just taken back. For every great thing someone had to say about Jobs’s return to Apple, there was someone else waiting to knock it down.
In hindsight, taking back its founder and former CEO was the best decision Apple made. The same cannot be said for RIM, though it could be argued Microsoft would do better under Bill Gates’s leadership once again. Neither company seems to have executives asking designers and engineers, “Stop. Think. What’s best for the future of computing? What’s best for the user?” and the customers are answering with their wallets.
However, Microsoft and RIM are still making money. They might be making less than they used to and a lot less than their competitors, but green is still flowing within their walls. Let’s give Microsoft more than a month to get its feet wet with Windows 8 before we start shutting off the power. And why not wait to see if RIM ships BlackBerry 10 at all before we start looting its supply cabinets for sticky notes and White-Out?
As tech writers, we think we know everything about the companies we cover. We think we know exactly how they operate, or worse, how they should operate. But we’re just as in the dark as the average Alsop. It takes an immense amount of effort (or lack thereof) for titans of industry like Microsoft and RIM to close up shop, so until the headlines start using words like “bankruptcy protection” and “top executives flee sinking ship,” bloggers might want to hold off on the thousand word obituaries. For now.