Innovate or stagnate and die

Innovate or StagnateInnovate or stagnate and die are pretty strong words and when hurled at technology companies by prominent business journals and bloggers, can run shivers down the backs of a CFO.

I recently had an online discussion about the futures of Microsoft. I have been known to be a Microsoft “basher” and I admit freely that I will never use another of their products for a variety of reasons. That being said let us move on to what, in my opinion, is not a bashing of Microsoft and Apple but rather a reality check at this moment August, 2013.

On September 02, 2013, I wrote some friends of mine the following letter.
Subject: More Microsoft rats have left the ship:
“Bye-bye Ballmer, hello open source?”

The authors are definitely not against Microsoft but they are not exactly coddling them either. They write “Much of the stasis for open source at the company was the result of Microsoft’s hard-baked executive portfolio. But as Sean Michael Kerner notes, a big slice of executive leadership has left Microsoft in recent years…In the past three years, the executives who ran the Windows, Server and Business divisions have left. Both Muglia and Sinofsky worked at Microsoft for decades shaping the strategy and culture that enabled the company to dominate in the desktop and server arenas. Both are gone, and now soon so is Ballmer.

Rats leaving a sinking ship, they cash in and leave. In a decade, young people will be saying “Micro who?”

The article, in part, says “New leadership could target open source technologies, as well as the developers who create and deploy them.

I say so what? Too little, too late. Google is eating their lunch and has the clout to drive them into the ground. Not necessarily a good thing, but more realistic than to think that Microsoft is going to rise again.

My friend replied:

He sent me a link and comment and said “I fail to see how anyone can say Microsoft is on the way down. None of them are going anywhere with figures like that! Stop dreaming.

My reply to my friend:

Thanks for the chart page. (I added a couple of quotes from the page below). I do not know why you think I am dreaming, the facts are there, we just need to look a bit farther than a 90 day profit report.

R.I.P WindowsThe demise of former giants:
Look back over the last 20 years and see which technology companies no longer around which were big. I am sure you remember most, if not all, of these technology companies which went bankrupt. Wang Laboratories brought us the word processor, and “grandfathered” HP, Microsoft, IBM and Apple. Napster was the Facebook of its day. 3DFX Interactive “grandfathered” graphics chips, and SyQuest made large portable hard drives.

And, what about these technology companies which changed the world and now are dead or dwindling unto death? America OnLine (AOL), WebTV, Polaroid, CUseeME, AltaVista, Silicon Graphics, Fairchild Semiconductor, Magnavox, Atari, Zenith, Palm Computing, and Commodore. If companies do not rapidly innovate, they stagnate and eventually die, not matter how big they are. I believe we are seeing the first stages of the decline of Apple and Microsoft.

Just as I was reading the article my friend sent me, a Wall Street Journal news item caught my eye titled “Microsoft in $7 Billion Deal for Nokia Cellphone Business.”

In part it says “…once dominant tech companies—including Microsoft and Nokia—have slipped behind the smartphone leaders, their future growth prospects have become clouded.” (WSJ-speak for read the handwriting on the wall, someone may fall.)

The deal with Nokia is an apparent acknowledgment that Microsoft needs a stronger hand to play in the mobile-phone business, where it is playing catch-up to Apple Inc. and Google Inc. Microsoft’s lagging position in mobile is one of the most serious threats Mr. Ballmer’s successor will need to tackle. The deal also is a recognition by Nokia that it is better to sell off its smartphone business than take on rivals like Apple on its own.

Jobs replacement? No WayDecline of Microsoft and Apple?
The Nokia rats are selling out and leaving their sinking ship. I predict this will make the product they may eventually produce together a poor one at best, again, too little and too late. Symbian was a great open source Nokia phone operating system and they dumped it for Windows. Just another example of how Microsoft “innovates”–they buy a struggling company, dump a bunch of cash on and into it, the fat rats and innovators leave and those who are left struggle to make it work.

The decline of Microsoft and Apple is already happening. Short-term profits are just that–short-term. When, hardware manufacturers slowly stop giving Microsoft a near monopoly to its OS in their shipped laptops and desktop computers, what will the Microsoft bottom line start to look like? That is how Microsoft became so big and is one of the best measures of its potentially poor prospects.

There is a much disappointment with the Windows operating system since XP, a venerable and usable system which came out back in 2001. If Microsoft had to rely only on retail sales of their OS, they would go broke. Few users who know anything about browsers willingly use IE, LibreOffice and OpenOffice are seen as very good quality substitute products for Microsoft Office, server administrators are dumping Windows and moving to Linux and UNIX. The Web runs overwhelmingly on Linux not Windows server, etc.

What I see in the long-term:

  • An avalanche of Free and Open Source Software (FOSS) products,
  • Microsoft’s continued lack of innovation,
  • The loss of much major Microsoft talent to competitors, especially Google,
  • The death of Steve Jobs at Apple.

All these, among other reasons, will have a long-term declining effect on both Microsoft and Apple.

Jobs’ death was an almost certain death knell for Apple, he was its heart and soul even if he was an arrogant bastard. Bill Gates was legendary mostly for being the richest man in the world. Along with his arrogance and ability to push his programmers around Gates left Microsoft long ago, and the current CEO Steve Ballmer has been a not very funny joke, especially to the Microsoft corporate board.

A slippery slopeApple has been around since 1976, Microsoft since 1975, their empires are slowly crumbling and unless one of them comes up with the next “killer” app, the slide down the slippery slope of stagnation will continue.

Even Microsoft is looking seriously now at Open Source products. FOSS was once “evil” as far as Microsoft was concerned. Microsoft is going to have to get far more innovative or slowly die like an unwatered vine.

I have followed Open-Source news for quite some time, it is only a hobby, but if we only look back in the last year or two, we can see how many large international and small local companies are making investments in Free and Open Source Software. FOSS has started to flow steadily into proprietary software companies. These companies are no longer willing to pay for software products when they can get good quality free software that they themselves can modify and distribute freely without crippling license restrictions and onerous per-user fees.

Innovation?Hardware companies are going to have to innovate and cut costs because manufacturers of smart phones, tablets and “web laptops” such as the Chromebook are going to cut into their sales if they do not. One way to cut costs is to stop paying Microsoft license fees and ship with FOSS operating systems.

…relatively static Windows revenue, despite the launch and continued push of its Windows 8 and Windows RT operating systems, and a $900 million write-off on its Surface RT tablet, gave investors cause for concern.” Not very optimistic for giant Microsoft.

The huge growth in tablets, phones, and content (iTunes among others) will keep Apple in the game for a while longer. However, Microsoft is a comparative non-competitor in that market. (“Microsoft’s U.S. market share in smartphones is about 3%, according to comScore“)

Apple has had “image” problems since the death of Steve Jobs. “Apple also had a troubling quarter, with flat revenues and significantly lower profits than this time last year. The company is making far less revenue per device than it has done in the past, and that’s impacting its bottom line significantly.

Symbian R.I.PThe next day I found a follow-up article called Deal Is Easy Part for Microsoft and Nokia. The following quotes appear pessimistic about the chances for Nokia and Microsoft to turn around their poor performance in the mobile market.

But the odds are long that a deal can reverse the fortunes of two laggards in a cutthroat market.

Microsoft is wagering a purchase of Nokia’s phone business will help the companies crack a problem they couldn’t as partners: attain the dominant smartphone positions of Apple and Google.

After nearly three years of working with Nokia, Microsoft is a distant No. 3 in smartphones world-wide, with its mobile software accounting for about 4% of the market compared with a combined 90% share for Apple and Google software. Nokia’s smartphones make up a negligible share after commanding nearly half of the market before Apple’s iPhone arrived.

Application programmers and developers are critical of helping Microsoft with its Windows smartphones. “We simply can’t devote any resources to support the (Windows smartphone OS) platform. It’s too small…” says one.

Rat exitIf you are an investor, beware the rats leaving a sinking ship. Google still has a long way to climb. (“Google’s wealth grew significantly this quarter“) Their Search revenues, Chrome OS, Chrome browser, Nexus phone and tablets, Android OS, Google Education, alternative energy, satellite communications, stratosphere-level balloon Wi-Max, and others make Google the new innovators. Google is hiring Apple, Microsoft, and other talent, they are dominant players in a variety of fields, skilled innovators. I believe you and I will live to see a serious decline, and the possible demise, of both Microsoft and Apple.

Perhaps some day we will even sing the swan song of Google? Get Linux…

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