Microsoft's Chanel No. 5 Moment
Microsoft announced its expected restructuring plan.
-- Brad Pitt, for Chanel No. 5
The most interesting thing about the world of technology is that, quite often, the most successful products are the ones we don't see coming.
Even the blockbuster products we do know are on the way -- like the Nintendo (OTCMKTS:NTDOY) Wii in 2006 or the first Apple (NASDAQ:AAPL) iPhone in 2007 -- often succeed for reasons we couldn't have foreseen.
Who would have known that a motion control system would get grandma playing video games?
And who would have thought before seeing the first iPhone that Apple was actually kicking off a touchscreen and mobile Internet revolution that is still reverberating throughout the world?
How about Google (NASDAQ:GOOG)? Forget about its search technology. There was Web search before Google, though it definitely could have been better. But I don't recall many people screaming for functional minimalism, revolutionized by Google's bare-bones user interface.
In summary, many companies observe how the world turns and they turn with it -- but the special ones, like the three companies I named above, actually do the turning.
I've extensively covered the downward trend in PC sales courtesy of the Toasterization trend following the release of Microsoft's (NASDAQ:MSFT) Windows 8, highlighting the fact that there was no post-release increase in sales, as is customary and which happened after the release of Windows 7.
I also pointed out in April that if you didn't know PC sales were horrible, then you just weren't paying attention.
Since then, there's been nothing but bad data, and it continued yesterday with Gartner's release of second-quarter industry sales numbers.
Gartner said that worldwide PC shipments fell 10.9%, marking a record five straight quarters of losses.
The song remains the same as tablets continue to cannibalize PCs, with Gartner noting the following:
“We are seeing the PC market reduction directly tied to the shrinking installed base of PCs, as inexpensive tablets displace the low-end machines used primarily for consumption in mature and developed markets,” said Mikako Kitagawa, principal analyst at Gartner. “In emerging markets, inexpensive tablets have become the first computing device for many people, who at best are deferring the purchase of a PC. This is also accounting for the collapse of the mini notebook market."
Shrinking installed base?
What are things going to look in 10 years given that babies are being raised by iPads?
So how does Brad Pitt's line about a quasi-metaphysical concept from that famous Chanel No. 5 commercial tie in to the collapse of PCs, and Microsoft specifically?
Well, the world has been turning and Microsoft has been attempting to turn with it, primarily by trying to hitch a ride on the Apple-driven mobile computing boom.
But after plowing forward with its Windows Phone and Surface tablet initiatives, it hasn't exactly been killing it.
In the first quarter of 2013, Microsoft held 2.9% of the market share in smartphone operating systems -- a big improvement from the 1.9% seen the year before, but not close enough to move the needle.
It's had a similar level of success with its Surface tablets, with 7.4% of the market (up from zero the year before), according to Strategy Analytics.
And with PC sales collapsing while these mobile markets boom, we're actually seeing Windows fall behind Google Android in the overall device operating system market share.
In fact, for 2013, Garner predicts the following market share split:
Luckily for Microsoft, it is a more diverse company than many people realize, as its Windows and Business (mostly Office) divisions account for 58% of revenues. That's still a lot, and Microsoft still makes most of its profits in these areas, especially since Online Services bleeds money, but still, a declining PC market does not equal immediate death for the company.
In fact, Microsoft has been shaking off the PC blues pretty well; the stock is up 33% year-to-date, crushing the S&P 500 (INDEXSP:.INX).
But enough about the past.
On Thursday morning, the company published an expansive outline of its widely-rumored reorganization plan under the title "One Microsoft":
We are rallying behind a single strategy as one company -- not a collection of divisional strategies. Although we will deliver multiple devices and services to execute and monetize the strategy, the single core strategy will drive us to set shared goals for everything we do. We will see our product line holistically, not as a set of islands. We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders. All parts of the company will share and contribute to the success of core offerings, like Windows, Windows Phone, Xbox, Surface, Office 365 and our EA offer, Bing, Skype, Dynamics, Azure and our servers. All parts of the company will contribute to activating high-value experiences for our customers.
Now, this reorganization may be something intended to smooth out internal company operations, and not something intended to please investors and the media.
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