The App Store Craze

I was at a family event and all my nieces had a iTouch. I had never played withe the iPhone or iTouch at this point so when handed one I gave it a drive. First I ran some YouTube videos. A soccer clip of at the time Manchester United player Christiano Ronaldo. Connected to the house wi-fi it performed really well, which was an eye opener compared to previous experiences on my Windows Mobile phones, which frankly you just did not try. then with the wave of my fingers I cruised around the iTouch software. Soon I landed on what I viewed as a boring feature “The App store”, then with a simple touch if my finger a new world was opened up.  At first I could not believe how fast I was moved from one screen to the next and then all the options available to me, either for free or for purchase.  The categories available, the large number of apps available was all very impressive and very different from my previous experiences with mobile applications.

Prior to the app store developing apps for mobile devices was painful and not very profitable.  The first problem was which mobile phone did you write to?  Symbian, RIM, Microsoft, etc..Then their was the carrier issue as each carrier wanted to own the ecosystem.  I had to choose between Verizon, T-Mobile, AT&T, Sprint etc..it was a real pain in the ass.  Not to mention that by the time you broke it all down there was not much of a market to go after.  Then ever if you did write the app the user experience of finding the app and loading it was long and painful.  Lastly the applications you downloaded were not very good or enjoyable, largely because there were not that many available.  It led to one conclusion writing, selling and running mobile applications was for the world of mobile geeks, other than that don’t bother.  Apple solved all three problems by owning the ecosystems, providing lots of applications and making it easy for everyone to get access, find and download what they wanted to.

Now it seems everyone is playing catch up with Apple – Apple has over 500,000 applications, Google has 200,000 – 300,000 and beyond that not a whole lot of applications or excitement for the other players in the space;  Microsoft, RIM, Nokia etc..Microsoft is already discussing Windows 8 and including an app store for the OS.  One  question is how many successful markets will there be?  It’s apparent for the foreseeable future there will be two but a third?  I will be interested to see what a Windows 8 store means.  We are talking about the desktop after all and will it mimic the Android or iPhone app store with a bunch of free and low-priced apps?  This would mark a paradigm shift for the desktop as traditionally you bought apps that costs into the hundreds of dollars.    What will the Windows 8 tablet look like and will it be successful?  Another burning question are Windows developers like their counterparts in the Apple and Google world. interested in low-priced slash high volume sales?  The one thing I think Windows 8 does have riding for it, is it can be different, since it’s legacy is the desktop.  For RIM it’s harder as they are targeting just a mobile platform and thus cannot differentiate.  For RIM the future I believe is only a painful one.  Then there is Nokia.  I have yet to see or hear what their plans are – will they just consume off of the Windows 8 app store, thus ceding the whole app store revenue stream to Microsoft? It seems there can be only one here.  But that it the downside of Nokia letting Microsoft be their primary partner for the mobile OS will deprive Nokia ownership of the ecosystem.  Nokia can claim what it wants but its survival is dependent on Microsoft’s ability to deliver in spades.  More so from a sales and marketing front than a technology front.

Is there another paradigm to be explored?  Something around the corner we have not seen yet?  Without question there is, but I think sometimes we think it is something not invented yet, when many times it is something from the past yet re-hashed and improved.  The mobility phenomena will continue to evolve. We are always connected but the experience will continue ti improve as 4G technology becomes more prevalent.  Before you know it we will be up to 5G and 6G (if it is still called that).  The traditional software pricing structure of 90% margins is being torn down and that will continue as new indirect revenue models take its place.  It is just beginning in the area of mobility.  Soon you will hear of huge revenues from mobile advertising used to subsidize software development.  Ray Ozzie at Microsoft discussed this in his first memo at Microsoft.   For some it is just hard to take the plunge.

The App Store craze is here for now and how long it will be is hard to say, but how we acquire our digital delights will move away from packaged software, similar to how we download music today or stream movies.  The winners will be those who committed and as we see in Apple’s earnings calls probably has already been determined.  The key to success will be creating an experience that us simple and useful.  There still is opportunity in the areas of the cloud, in particular in small and midsize business and the enterprise.  There are companies making their imprints, such as Salesforce.Com, Amazon and Rackspace, but the game is still wide open.  It’s interesting to note in the last decade how the cutting edge of technology has moved from the ivory towers to the hands of our teenage kids and the impact it’s had on traditional tech powers.  The days of home desktop productivity software at $500 are over as the app store has created a mass market shift in how we consume our software and how we expect it perform.  There are those who can choose to take the plunge into the deep or perish in the tidal waves that follow.

Good Night and Good Luck

Hans Henrik Hoffmann August 23, 2011

Microsoft Licensing History and Challenges Revisited

Sometime in my blog posts I like to revisit older posts to see if thing shave changed or not.  With the Microsoft Fiscal Year coming to a close June 30th I thought I would revisit this one.  It may be a bit dry to some but this one is for all my old co-workers in the field, hoping the year has treated you well:-)

With the end of the Microsoft fiscal year coming around I thought I would write a little about what my fellow co-workers make their living on – the licensing of Microsoft Software. It actually is a rich and exciting history and good insight to the future of Microsoft. In 1976 Bill Gates wrote a letter titled “Open Letter to Hobbyists” in the MIT Homebrew Computer Club newsletter which expressed his frustration that many were using Microsoft’s BASIC programming language and distributing it without having paid for the software. This letter is probably one of the most important documents ever written, not only for Microsoft, but for the entire technology industry. The Open Source community may decry my assessment of this as the most vile and evil thing ever written, but without this document they would have no enemy. If you don’t have an enemy you really don’t have much of a cause. The letter established what Microsoft was going to do to build a business model that would lead to billions of dollars in revenue. All in the name of the right to profit on intellectual property. Amen.

When I started in 1991 one thing that had been in place for a while and was generating a lot of revenue was the OEM model. I wrote about this earlier but this was the simple process of licensing software (early on MS-DOS and later Windows) to hardware companies who manufactured PC’s. It was a great model for a new industry that was still trying to find its footing. All these new PC manufacturer’s needed an operating system and at the time MS-DOS was cheap and could be licensed. Some of those names became big players in the industry like Dell, Compaq and Gateway. It was cheap for Microsoft. Once you had created the disc you just made some copies and shipped to eth OEM who installed on their hardware. It was simple math. My cost is $1 to duplicate the disc and I charged $75 (this is a rough estimation). The margins in the intellectual property business are usually greater than 90 percent. It has become multi-billion empire within Microsoft. Whenever you watch CNBC or read the Wall St Journal and it says PC shipments are up, it means Microsoft is making hundreds of millions of dollars.  The millions are counted in seconds.

What was beginning when I started at Microsoft was the more structured process of licensing to businesses. Like all things it started small, but it represented a real “green field” opportunity for Microsoft. Remember at this time the idea of personal computing was still new to many companies and with it they received a whole host of benefits, but at eth same time they had new headaches they had not experienced before. When a new operating system was released did the company have to go to the local reseller and buy new copies of the OS? would they get a discount after they had purchased so many copies? Why did they have to do this, why couldn’t Microsoft? Bing (no pun intended), a new licensing model was created. First there was Select Agreements, soon to be followed by Enterprise Agreements. Stay with me on this one as I know licensing is about as much fun as watching paint dry, but it is super important to helping one understand how Microsoft makes money and the challenges they face in the not so distant future.

First lets tackle a Select agreement. In simple terms this is just a negotiated price sheet. Only two things occur here. The customer and Microsoft negotiate what will be on the price sheet. The second being what will the discount be. They are always three-year agreements. From a sales reps perspective it is pretty simple – when they sell additional software into a company they place an order through their reseller who provides the quote back to the customer and collects the purchase order. Pretty simple stuff – there is one additional things – maintenance or the current term software assurance (SA). I purchase this at the time of order and if I want all future releases of Office I pay for SA, when it ships I automatically receive as part of my contract. Usually however a Select agreement is not alone.

Now we hit the big agreement the Enterprise Agreement. I will say my bias in this whole blog is towards these EA agreements as I spent over half my career at Microsoft calling on Fortune 1000 companies and working with our account teams to facilitate the growth of these large cash cows. The EA in short is a commitment. A three year commitment. It is a large part of the Microsoft licensing machine. For many sales reps it is their lifeblood (or death depending on how the deal goes). So what exactly is it? It is a list of products a customer commits to that includes a product (Windows) with Software Assurance and payments are spread out over three years. If you do a $60 million deal then it..(I take it most of my readers are good at math). So there you have it you are all now Microsoft Licensing Specialists. There is a job title at MS for Licensing Specialist, so apply now you are qualified.

Early on in the early to mid 90’s this was all greenfield opportunities for Microsoft sales reps. Most companies needed an agreement with Microsoft and the products were really not many – in fact the first ones would be dominated by Windows and Office. It was a great time to be in the field. It created an odd sales model as well as when reps made and exceeded quota they were not compensated with huge commission bonuses but stock options. As we all know in those days the stock options were the road to riches. It also created a very Redmond centric environment where the Product groups were all-powerful and the field was simply a delivery vehicle. I only say the sales model is odd because to a large degree that mindset remains today and though bonuses are available the Microsoft field rep is not compensated like other industries. Redmond still holds the view that they are the kings of the company. It always cracked me up and made me angry when product managers would say “the field does not know how to sell our product”. This despite the fact that they spent so little time in front of customers. This is why so many senior leaders who have joined Microsoft say that Microsoft truly lacks a sales culture.

To follow-up on this some more the days of stock options are gone and the EA agreements that were originally Windows and Office have grown. Early on that was a good thing as Microsoft added more and more value into the EA. However starting even before the financial market meltdown the agreements had encompassed so many products from Windows to Office, development tools, Server products (SQL, Exchange, BizTalk, OCS, MOSS etc..) all with client licenses, it had become apparent companies were in many instances paying for stuff they did not use. When the market meltdown hit companies really started taking a closer look at not just Microsoft agreements but all agreements. The challenge the field is now facing at Microsoft is how do you grow a business when companies are trying to shrink what they buy from you? The answer from current Microsoft COO Kevin Turner has been “you take share from your competitors”. I always found this a bit simplistic since in my view you are always trying to take share from your competitors – in the good times and the bad. When it comes right down to it the acct execs and other sales professionals at Microsoft get brought into a spreadsheet excercise and provided the account team has done their job the numbers either go up or go down.

Moving forward and looking towards the horizon there are big changes in licensing under way as the industry starts to look at cloud computing and subscription based services and move away from the traditional licensing of software. It is not entirely new. I was there at the beginning when we introduced at Microsoft Service Provider Licensing Agreements (SPLA) in 1999. It has just taken a while for the technology to catch up and the market to be ready to make this move. For sales reps it represents an entirely new “green field” opportunity. You can see based on the latest sales hiring activities at companies like VMWare and SalesForce.com. For Microsoft it represents both an opportunity and a challenge as they have to transition from traditional licensing models to new licensing models. It is the challenge of having a legacy, which many companies entering the cloud do not have. I have no doubt Microsoft will overcome th technical challenges it faces but the ability to handle the financial transition from “old school” licensing of IP to the modern world, in my view, will play a huge part in determining the success or failure of Microsoft in the next five years.

Good Night and Good Luck.

Hans Henrik Hoffmann June 15, 2011

Where is the Microsoft Tablet?

It has been nearly 2 years since the release of the iPad and during that time we have seen a titanic shift in technology and the market’s expectation of what technology can provide.  It seem every week companies are coming out with a new iPad application.  If you watch local news or national programs they all seem to have a iPad application. The good news for the market is it is not just the Apple iPad.  Not far behind and rapidly growing its user base are the Google Android tablets.  The Android provides a greater range of choices while still providing access to thousands of cool and useful applications.  Soon there will be other entrants like the HP tablet based on the Palm OS.  The interesting thing is not what is coming out, but where is the 800lb gorilla?  It seems very hard to hide a beast of that size, but yet the gorilla has remained hidden.  You cannot even hear it whisper.

At the recent Consumer and Electronics Show, Microsoft CEO Steve Ballmer was on stage delivering the keynote address.  What I guess was interesting about the whole presentation was not what he said but what he did not say.  At a trade show where everything was focused on tablets, Ballmer talked about everything but a tablet.  His big thing was Microsoft’s foray into engineering and developing for ARM (for you non-techies who read my blog it’s a microprocessor like Intel).  This should not be trivialized, this could have benefits.  However it is short on sex appeal.  Unlike some tech shows where new things are touted at CES, tablets were new, but there were sales to back it up.  So it was not just another gizmo.

Since CES we have seen launches of new Tablets like the Samsung Galaxy and iPad 2.  We see them developing channels for resale through the service providers.  Companies like AT&T and Verizon are eager to have these devices on their network as they can drive data plans.  Microsoft for years has been trying to build a resale channel with the Telco’s. An old boss of mine is in charge of creating the worldwide reseller channel with the telecommunications carriers.  What does he tell them when they ask, “what’s your tablet strategy?”  He also used to tell me in sales, “You are what your numbers say you are”. In its first weekend of sales the Apple iPad 2 sold over 500,000 tablets.     Now we can have positive adjectives to describe our numbers, which is fun or we can have negative adjectives to describe our numbers, which is pro fain.  Apple and Google would both have very colorful adjectives.  Microsoft, well lets just say they may need to spend time in the confessional booth .

One thing that seems to be holding Microsoft back and seems to fuel a lot of speculation and gossip is what  operating system will they use, when they do come out with a tablet (I gotta admit I am guessing on this one as I have seen nothing in the press or heard from old friends about this one)?  The debate is between Windows 7 and Windows Phone 7.  Do you mimic what Apple did with the iPhone and simply enlarge to the iPad or do you go with your bread and butter, your flagship product, Windows.  I can say from a historical point of view when push comes to shove, the big boys at Microsoft always win, with that in mind it would seem Windows 7 will come out on top.  All I know is while the debate rages on the market does not stop.

When thinking about what is going on can history really repeat itself again?  Microsoft was in the Smartphone business for quite some time before Apple joined the party with the iPhone, and before they could respond out the gates and off to the races came Google’s Android platform.  By the time Windows Phone 7 came out the market was in a mature phase, so the Windows Phone was just another player trying to be heard. The Tablet business is similar in many ways. Microsoft has been in the Tablet business even longer than the phone business, as the vision of a more interactive device had long been a pet project of Bill Gate’s.  Yet as I sit in my office it seems as if history has already repeated itself.  Apple came out withe iPad but not far behind, once again, was Google with their Android based Tablets.   To be honest this is all eerily similar to the early days of the PC industry where Apple made the expensive high-end computers and Microsoft did the cheaper low-end computers, except now we can replace Windows with Android.  One area of my theory can be brought into doubt by one single question, “Where is the Microsoft Tablet”?

Good Night and Good Luck

Hans Henrik Hoffmann March 24th 2011

Waiting for the next Internet Browser Revolution

When we log onto our computer these days there is pretty much only one place we want to go,where we want to be, on the internet.  When we are in the internet there is really only one application that matters, our browser.  After years of being an Internet Explorer only kind of guy I decided it was time to branch out. At my current place of employment I have loaded all 4 browsers on my Dell Laptop and I even bought an iPhone. As I have played around with them it strikes me that not any one (Safari, Firefox, Internet Explorer or Chrome) really “wows” me in any meaningful way.  But a few interesting habits have come to light.  On my laptop I spend most of my time in Firefox and Chrome, not sure why but it just seems to be comfortable to me.  In the world of mobility I am pretty much forced via my iPhone to be a Safari user and it does what I need so I am not upset, I frankly could care less..

I could go through a review of each browser but at the end of the day that would be, in my view, a pointless effort.  There are enough reviews out there and I cannot really add any value by doing one. Each has certain things that are nice and each claims to load pages faster.  The latter being something I could not verify from an end-user perspective.  they all seem about the same to me.  Chrome and Firefox have sites where you can get plug-ins for the browser, but so far the one’s I have seen are in the “geek world”.  Nothing very sexy or appealing about them, I may be proved wrong, but I am just saying..

Right now the browser has become the application of choice for nearly everything we do with a computer.  For the average home users it’s where we stay connected with friends, get our email, real-time news updates, do online shopping, and now we are starting to use if for word processing and online spreadsheets.  In corporate America  every internal corporate application is browser-based.  With the browser being so ubiquitous in our day-to-day lives it raises the question of what next?  What more can it do?  I think there are several areas that we will see these changes take place,

One of the hot topics is video.  By some estimates in 3-5 years 90% of internet traffic will be video, both on demand and streaming live events.  It;s not that far-fetched, when you look at popular content coming YouTube and Netflix it seems rather obvious.  The ability to have the entertainment when we want and how we want is pretty compelling and been sort of holy grail for years.  Of course it’s not quite that easy.  One of the big discussion in technology and what seems to be certain is the standard to play video will move to the browser based on the next specification for HTML; HTML5.  Today most video content is Adobe Flash based.  People in the industry make a big deal about open (HTML5) versus closed (Flash).  It’s a nice debate but at the end of the day what is ever the easiest for the average consumer will win out, because Joe average does not give a rip about versus open or closed and they should not have to.  In my opinion the biggest impact this will have is how we interact with our television or don’t interact.

Another change being driven primarily by Google is the browser as platform.  To the non-techies what this means in short is when I create an application I do not need to write it so that it run son Windows, but to the “cloud’ to use a popular current term.  In concrete terms in may mean you will by a personal computer that runs Chrome as the operating system.  Or maybe to quote Marc Andreeson, “Windows will just be a buggy set of device drivers”.  This is happening and is very real.  Over 75% of applications that are developed today are web-based applications.  Can  it be constrained to one browser?  Probably not, we will not see a Windows domination in the browser.  History is against that happening, but those that do not try will become history.

Finally the tablet  growth is driving significant changes in browser market share.  With an Android you are obviously getting Chrome as the browser of choice.  Likewise with a iPad you will be using Safari.  My view is with either and with not any huge difference between browsers there is not going to be a huge incentive to move to another browser.  The tablet to me is really about freedom to be where you want and freedom from your keyboard and desk.  I mean the last point in the physical sense.  If I can make my workplace where I am the most comfortable if that fits into my daily personal life, that is what freedom from technology is.  The point is with technology as much as it has liberated us it has constrained us and we get caught up in work and though we think we are being more productive, we are working longer and are less fulfilled in life.

In the end we may be blessed with a truly competitive browser environment where each iteration provides something very compelling.  With the growth in video content that possibility exists.  Mobility will take us to life scenarios yet to be imagined.  There will be downsides.  In Paul Theroux’s travel book through Africa “Dark Star Safari”  he started by saying he wanted to take a journey where there is no email, no cell phones he just wanted to be disconnected.  With the great promise of the future, the ability to browse wherever and whenever that desire will be very hard to achieve.  But the browser will be central to all those dreams and horrors for better or for worse.

Good Night and Good Luck,

Hans Henrik Hoffmann February 13, 2011

The Next Revolution has already occurred

It was interesting reading on CNet recently that Goldman Sachs was pessimistic about Microsoft’s 2011 (This article is not about Microsoft – so please read on). This was on top of a report the day before of 54 million Tablets sold this year, 37 million were iPads, the rest were based on Google’s Android OS.  As we entered the New Year we began with the preeminent trade show, the Consumer Electronics Show.  This show has grown in strength each year as people line up to see what type of technology gizmo will change the landscape of consumer behavior and of our day-to-day lives.  Analyst line up to see what the next big innovation will be and what new breakthroughs it will drive.    Reading about all this made me stop and think about the future, and as is usual I first started thinking about the past.  I will admit I am a product of the dotcom era, where everyone’s ideas were big and going to be revolutionary.  At the time everybody got caught up in it.  When it ended it was a let down on the future, it was not just not just a market bubble it was an emotional bubble.  It’s legacy is we are all waiting for the next internet tidal wave to hit us.

Information has always brought about change, but in today’s world it moves a lot faster than it used.  If you think back to the Cold War one of the defining moments was the publication of Alexander Solzhenitsyn’s “The Gulag Archipelago”.  The book that depicted the lives of the Soviet people in the prison camps during the Stalinist regime.  To get that book printed it had to get out of the Soviet Union.   It had to be hidden in homes and far away from the Soviet KGB.  Copies had to be made and there were no computers with floppy discs or CD’s/DVD’s. It required the support of high level politicians in the United States to facilitate the process (we all know how fast they move…).  The book finally got to the west in 1968, but would not be published until 1073.  It was a long, slow, and very winding road to get there.  Those days, luckily, are far behind us.

Fast forward to today and we see the world is changing before our very eyes and  technology is driving that change..  Nearly two years ago when a wave of violence and protest spread through Iran we saw “tweets” posted via Twitter regularly.  Videos came online as protesters took to the streets and captured video with small digital cameras and mobile phones and it came near real-time to the public online.  Many of the most gruesome videos from these protester came at us from the cable news networks, as the cable news companies scoured the web for the latest content.   Not their camera men but just ordinary people in the streets like you and I.  Now we fast forward to today and we recently saw this same act play out successfully in Tunisia.  Even now as I write protests have set the world (and the markets!) on fire in Egypt as violence has spread through mystical cities like Alexandria and Cairo.  Everyone in the media waiting for the next relevant “tweet” or video.  Despite the efforts of the Egyptian government to shut down the internet the information steadily flows outside its birders, coming from the Egyptian citizens.  The big key to this is not the PC, but the rise of mobility and the mobile  internet.  Former President George W Bush in his book, “Decision Point” took a long-term view of  history that the invasion and liberation of Iraq in 50 years would be the turning point in the middle east spreading democracy throughout the region.  My view is that road was already starting, but id did not require war to get there.  Technology is the major unifier as information flows freely across borders, no matter how autocratic the regime.  Democracy and opportunity is on its way as a world order, thanks to the mobile internet.

The idea of mobility and access to immediate information is transforming our lives, both in the big ways like Egypt and Tunisia as well as a small way, like paying our cell phone bill from a mobile phone while on vacation in Yellowstone Park.  If you think back in history these changes have all been about personal freedom.  Look at what the automobile did to the human experience.  The sheer idea that a person could go drive 300 miles by themselves  in six hours was unheard of, now it is fairly common as kids drive off to college.  But the automobile led to so many things in the course of the next 100 years, from the roadside Motel to the shopping mall.  Today we are looking for freedom from our keyboard and monitor (Bill Gate’s just vomited).  The mobile internet will lead to similar change and economic opportunity like the automobile.  There will be those companies and those individuals who recognize the opportunity and will drive changes in society beyond anything previously imagined.  Then there will be those who maybe saw it and did not understand it or missed out entirely on the change in front of them.   It is one of those times where in 10-15 years we will all look back at those that failed and say “How could they not see it?”.  A few companies come to mind today that are embracing the mobile change, and in some cases defining it.  The obvious ones are Facebook, Google, Apple and Twitter. Mobility is the single biggest transformation in society since the birth of the automobile and will continue to grow and change society throughout the 21st century.  Like the automobile it will lead to new modes of life that we have yet to discover.  Those companies that embrace mobility as an overarching strategy versus a line of business offering will be poised for greater success, while those that drag their feet will be irrelevant.

Good Night and Good Luck

Hans Henrik Hoffmann February 8, 2011