Low Volume Player

By Alex Brooks Steve Ballmer demos some Windows 8 devices | Image courtesy of Microsoft
A few weeks back Microsoft CEO and chief ass Steve Ballmer was asked in an interview with the Wall Street Journal if he’d like Microsoft to evolve to Apple’s business model, that is to say would Microsoft enjoy being in control of both software and hardware? In response Ballmer said that “[i]n every category Apple competes, it’s the low-volume player, except in tablets,” adding that “In the PC market, obviously the advantage of diversity has mattered since 90-something percent of PCs that get sold are Windows PCs. We’ll see what winds up mattering in tablets.”
To even the most casual of Apple watchers it would be obscene to believe that Apple is a “low-volume” player in the smartphone market, MP3 market or even arguably in the hardware side of the PC market.
So what led Ballmer to label Apple has as a low-volume player, apart from the fact that he is completely unable to see or predict an industry trend through the mind warping success of Microsoft’s recent endeavours. Is this just a defensive quip from Ballmer as he faces the pressure of a number of failing ventures into the post-PC and smartphone markets?

The smartphone industry is one where Apple is most commonly associated these days. The release of the iPhone in 2007 has revolutionised mobile computing and Apple’s business model, it’s also shaken up Microsoft something good with their Windows OS (formerly Windows Mobile, now Windows Phone) having little to no foothold in the smartphone market and forced them into a position where they’re chasing Apple.
So is Apple a “low-volume player”? Definitely not when it comes to revenue. During the most recently reported quarter Microsoft revealed a quarterly revenue of $16.01bn. For the same same quarter Apple announced quarterly revenue of $17.1bn just for the sales of the iPhone. Small player indeed (Thanks to Horace Dedui for letting me take a look at his numbers).
But that’s not fair, how about if we actually delve into where exactly Apple plays in the smartphone market. This is remarkably difficult as the majority of other manufacturers don’t report their numbers quarterly so instead we’re going to have to rely on estimates.
Well in the last quarter Apple sold 26.9 million iPhones, leaving them in second place marketshare wise to Samsung who has a large lead and was estimated to have shipped 56.3 million devices worldwide. Important to note that this figure for Samsung is an estimate and that they also ship a considerably large variation in devices compared to Apple’s three handset approach to the market. Sticking with the Microsoft theme though let’s look at Nokia’s shipments last quarter, as they are a major distributer of Microsoft’s Windows Phone operating system, well they were estimated to have shifted just 6.3 million units—more than a million less than beleaguered RIM.
But I’m sure Nokia’s not worried because Apple is such a low-volume player and they have Microsoft’s OS to save them.
Well, how about the PC market, a field that is dominated by Microsoft’s Windows operating system? With the recent release of Windows 8 Microsoft is banking on the PC market to help with its recovery. But there’s a problem, the PC market as we know it is in decline. Traditional computing is a dying breed, there will always be a place for the PC but more of its role is being covered by ever more powerful and capable tablets.
Chart of total quarterly PC shipments (Q409 – Q312) | Data from Gartner
The chart shows total PC shipments as recorded by Gartner since the end of 2009 until the most recently reported quarter. Growth is stagnant and in four of the last eight quarters it is in decline. Some could argue that this recent decline is anticipation of the release of Windows 8, yet with Microsoft reporting initial upgrade sales of just 4 million in three days it would appear that demand wasn’t as pent up as originally thought.
With Apple selling (Apple records sales where as the industry records shipments which could sit unsold for months) around 5 million Macs a quarter it’s clear that Apple could be considered a small-time player in the PC industry in terms of software. In the US Apple regularly falls into the top three hardware manufacturers of PC hardware according to Gartner.
Microsoft isn’t involved in the potentially high margin PC hardware business and instead relies on third parties to license its software. Is it wise for Microsoft to be banked so firmly on a declining market and not be in control of the hardware?
Microsoft Surface with Red Touch Cover | Image courtesy of Microsoft
Apple perceives the iPad as a “post-PC” device. This phrase goes beyond just marketing and is clearly what Apple believes through its core, the company truly sides with the idea that tablets represent the majority of future computing. It’s an understandable but odd position for Apple to take, primarily because unlike the PC-market as a whole Apple’s Mac growth is bucking the trend and heading skyward, slowly. But as we’ve seen the Mac share is tiny in comparison to the whole market.
But what about the post-PC market? Ballmer fully admitted that Apple is the dominant player in this market but it’s a fresh market, ripe for new competitors and arguably still in its infancy with all manufacturers but Apple.
But herein lies Microsoft’s problem and based on Ballmer’s comments, a fair amount of jealousy to boot. Microsoft is keen on blasting into the tablet market, Microsoft is keen to do this whilst not alienating the hardware partners that have been so good to the company for decades. Which has led to the current situation that Microsoft finds itself in, it looks like a mess from the outside and for all we know could very well be creating huge concern on the inside (recent executive departures may say so).
Microsoft has its first serious punt at making a post-PC device, with the Surface tablet Ballmer has clearly decided to the take the Apple approach to the tablet market and hold control of both the hardware and software. But the very same software that is being designed to run on the Surface is also designed and built to run on competing hardware. So as has been Microsoft’s challenge for decades the company is once again stuck creating the most widely compatible software that’ll work with a number of hardware partners.
This problem is compounded by legacy thinking on the part of Microsoft and the huge enterprise customers who are unable to move quickly and efficiently and therefore require the maximum possible amount of legacy compatibility. The approach Microsoft is taking, unlike Apple, is to build one operating system for all platforms and all hardware, it’s the wrong thinking and Microsoft is unfortunately going to find this out the hard way.
Microsoft’s experienced and established hardware partners will in the face of the threat of the company building better software just for its own hardware begin competing on price with the Surface, forcing down the margins of the Microsoft hardware and eventually pushing it out of the hardware market.
Then there’s the software problem which will also eventually alienate the hardware partners. In striving to create software that works equally as well in touch environments as it does in the land of pointing devices the software ends up a confused mix of small target areas and large target areas and juxtaposed user interfaces. It’s unlikely to directly annoy the hardware manufacturers that already run with such low standards of quality but there’s no doubt that the consumer will speak with its feet.
Microsoft will of course defend its position, claiming that the freedom that this model of software running on lots of different devices and able to run a large swathe of software both old and new will win over the consumer.
In the words of Ballmer “legacy, legacy, legacy”, or something like that.

Source: World of Apple