Posts tagged Dominance

In 2010, Apple blindsided Microsoft – and most everyone else – with the phenomenal success of the iPad. That success is now eating away at Windows PC sales. While Apple’s innovation took Microsoft down for the count, the software giant has regrouped and is trying to come back by shifting the battlefield from consumers to businesses.

To turn the tide, Microsoft is counting on business users, a market where Apple remains relatively weak and CEO Steve Ballmer’s crew retains several critical advantages. Microsoft’s counterpunches will include Windows 8 and Office 13, a combination Apple can’t match in the business world.

“This is Microsoft’s edge and either through policy or actual purchases businesses have the capability of being kingmakers here and could cause Apple to be eclipsed again,” said Rob Enderle, principal analyst for the Enderle Group.

Since the iPad’s introduction, businesses have been dabbling with the tablets, mostly because employees were bringing the devices to work and putting pressure on companies to support them. Without a strong alternative, many businesses went along – at least supporting employee devices and creating pilot iPad-adoption programs. While the iPad has found a home in specialized niches such as real estate and hospitality, sales and engineering, it’s unclear how much mainstream corporate IT departments really want to support the iPad. When Microsoft releases the various versions of Windows 8 and its new Surface tablet, a lot could change.

Microsoft Office Makes a Difference

That’s because Office 13, set to ship early next year, finally brings the productivity suite still used by more than 90% of businesses to the mobile world. The new software supports touch and stylus interfaces, as well as the traditional keyboard and mouse. When running on top of Windows 8, Office becomes even more powerful through its integration with email servers, document management systems and databases. Despite their popularity and many advanced features for individual users, Apple’s Mac OS X and iOS still don’t play as nice in business computing environments.

People who doubt the market strength of Office need only look at Microsoft’s second quarter results. The company reported July 19 unearned revenue of $20.1 billion, as businesses placed multi-year orders for Office and databases. (In accounting, unearned revenue is what companies collect for products they promise to deliver in the future.)

Businesses are likely to give Microsoft the foothold it needs to challenge Apple in the tablet market. Sales of Windows tablets will grow from roughly 5 million this year to 44 million in 2016, or about 12% of the market, according to Gartner. Apple’s share is projected to fall from 61% this year to 46% in four years, while Android tablets rise from 32% to 38%. That leaves Microsoft still in third place by a wide margin, but perhaps with enough momentum to block Apple from the lucrative business market – a market that Apple also missed out on during the PC boom in the 1990s.

To go further in the tablet market, though, Microsoft will eventually have to win over consumers. “If someone wants to create or modify Microsoft Office files on their tablet or use other Windows applications, Microsoft has a definite advantage,” said Ezra Gottheil, analyst for Technology Business Research. “Otherwise, the iPad will be perceived to be the superior consumer tablet.”

Microsoft may also have an opportunity to leverage developer interest in creating apps for enterprise users. Research in Motion once owned that market, but Apple currently leads it while second-place Android appears to be fading. Full compatibility with Windows computer applications is something that many corporate IT managers want in a tablet. (For more on enterprise app developer preferences, see Dan Rowinski’s [Survey] Developer Interest in Enterprise Apps Likely to Benefit Microsoft.

Turnabout Is Fair Play

While Microsoft gains share through business, Apple will continue attacking the tablet market through entertainment, where Apple has a very strong position dating back to the introduction of the iPod music player in 2001. While it’s possible to create documents and do other business-related chores with the iPad, the tablet is about fun and games for most people. A study by research firm Consumer Intelligence Research Partners found that for 40% of 1,000 iPad buyers surveyed, surfing the Web was the number one activity. For a third of the buyers, watching video, listening to music and looking at photos was the top activity, and for 27%, it was playing games.

Just as Apple used entertainment to make its way into the office, Microsoft will use the business market to open a road into the home. Once familiar with Metro, Windows 8’s new touch interface for mobile devices, people will be able to comfortably take such devices from the office to the living room, to cafes and where ever else they do their computing on the go.

The Ultrabook Issue

Microsoft no doubt hopes to use its tablet strategy to jumpstart ultrabook sales against Apple’s MacBook Air, a market leader in light notebooks. (Ultrabooks are defined as being less than one-inch thick, able to turn on instantly, always connected to the Internet and have eight hours of battery life.) First to market, the Air has outpaced the industry as a whole in sales. That dominance will be challenged in October when PC makers release their first serious ultrabook competitors with the release of Windows 8.

Intel, which makes the processors that power ultrabooks, has spent a fortune on marketing and technology to try to convince consumers ultrabooks are the next great innovation in the PC industry. The company believes the thin-and-light devices can account for 40% of consumer notebook sales by the end of 2012. “We said all along, 2011 was about getting into the game, and 2012 is about taking it to the masses,” Intel spokesman Jon Carvill told CNNMoney.

The big question is whether ultrabooks will be smaller laptops or more powerful tablets. Computer makers, such as Lenovo, Asus and Samsung plan to release tablet-ultrabook convertibles. Apple has said its tablets and notebooks will remain separate devices. PC makers see that as an opening.

The upshot for consumers will be a smorgasbord of devices, many of which may leave people wondering whether the product is a tablet, an ultrabook or something else entirely. “The big picture is that over time, consumers are buying more and more computing devices, but those devices take different shapes, and only some of them are PC-shaped,” said Sarah Rotman Epps, analyst for Forrester Research.

The worry for Microsoft, of course, is that consumers will see tablets not as smaller ultrabooks, but as bigger smartphones. While Microsoft is also working hard on Windows Phone 8, it really hasn’t made a dent in the smartphone market. Microsoft partner Nokia reported last week that sales of its Lumia smartphone, today’s flagship device running Microsoft’s Windows Phone software, doubled from the first to the second quarter to 4 million units – far behind sales of the iPhone and Android models.

Wither Android?

Of course, Microsoft will be battling more than just Apple in the tablet and smartphone markets. With the completion of its acquisition of Motorola Mobility, Google is ready to make a serious entry into manufacturing hardware – not just supplying reference designs. But because the Motorola deal just closed in May, it’s still difficult to predict what impact Google will have on the mobile hardware market. In releasing financial results last week, Google’s Chief Financial Officer Patrick Pichette said the company is evaluating all of Motorola’s business segments.

So while Microsoft may be coming back technologically, and the company has some structural advantages in the business market, there’s no guarantee Ballmer and company can convince consumers to take Windows 8 with them when they leave work.

A lot depends on people loving Metro as much as they do Apple’s iOS. That’s a tall order, given Microsoft’s failure to woo mobile consumers in the past. But the company has to be aware that failing this time could keep Microsoft a prisoner in the business world for a long time to come. “IT (departments) can’t override their users as successfully like they previously did with PCs,” Enderle noted. “But if Microsoft has a hit, IT could turn that hit into market dominance.”

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