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Wednesday, 09 December 2015 12:32

Microsoft will have a very happy Xmas

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All the indications point to Microsoft having a very happy Christmas this year. Microsoft’s new Surface Pro 4 and its little brother the Surface 3 have ‘sold out’ in the US pre-Christmas rush - retailers can’t get enough.

Warning: This article is over 2,000 words so you may want to get your favourite beverage first or book mark it. All facts have been checked - all opinions are mine!

While sceptics could say that sell-outs are a forecast problem I am assured that sufficient stock was shipped to meet anticipated demand as forecast by its retailers, distributors, and its own online and store network.

I decided to check out the situation in Australia but was unable to get official comment so I decided to investigate by burning the shoe leather and posing as a secret shopper. No I did not reveal I was a journalist as I wanted shop floor comments.

A weekend trip to the Microsoft store in Pitt Street Mall, Sydney revealed a brisk trade. When I got the attention of the Surface expert I asked how well the Surface Book, Surface Pro 4, and Surface 3 were selling and if they had adequate stock for me to delay purchasing until the new year.

Surface devices range from A$699 for Surface 3, and the Pro 4 from $1349 – both can use optional pen ($59.95 for Surface 3 and $94.94 for the Pro 4) and keyboard ($179.99 for Surface 3 and an $199.95 for the Pro 4). The more expensive Surface Book starts at $2299 but that includes keyboard and pen/stylus.

The answers [paraphrased] were Surface Book had attracted a lot of attention and the conversion rate ‘where price was not an issue’ had been 100% but where it was an issue they ended up buying the Surface Pro 4. The Surface 3 had been a surprise seller as it was the price leader.

In terms of deferring purchase he said they were very low on Surface 3 and Pro 4 and he didn’t know if more were coming. Surface Book was OK.

I ambled over to Apple’s George Street store – it was busy but not brisk. Again the same questions – how well the iPad Pro, iPad Air 2, iPad Air, and iPad mini 4 were selling and if they had adequate stock if I were to delay until the new year

Apple’s iPad Pro, iPad Air 2, iPad Air, and iPad mini 4 range in price from, $569 to $1699. The iPad Pro has an optional $165 pencil [stylus] the $269 smart keyboard cover.

After a long and informative discussion about the differences in the products I gleaned that the iPad Pro sales had been slower than expected, iPad Air 2 was aspirational but the iPad Air had the bulk of the sales, and the mini 4 was not selling well at all. They had heaps of stock and a purchase delay would not affect that.

I delved into the iPad Pro comment and got the company line – its designed for those that want to create content using a pen and keyboard – it’s a specialist product for a specialist audience. He pointed out that it did not need a mouse as it had a touch screen.

I decided to finish my empirical research by visiting a hugely busy JB Hi-Fi under the Strand Arcade that sells both Apple and Microsoft devices. It has separate Apple and Microsoft experts.

Its sale of Apple iPad Pro had been disappointing – starting from $1249 with 32GB but most bought the 128GB version with pencil and keyboard making it a $1933 purchase. Sales of iPad Air 2 was slow, Air was OK, and no interest in the mini. Stocks were good.

It does not have the Surface Book but ‘people don’t really come to JB’s to buy really expensive stuff’. Instead the Surface Pro 4, Intel i5 and 4/128GB at $1499 plus keyboard at $199 – a total of $1698 was the most popular SKU. Surface 3 had also been a great seller – evenly between the $699, 2/64GB model and the $899, 4/128GB model. Stocks were low and selling fast.

I chatted with the Surface expert a little longer and admittedly he was biased towards Windows 10 – in an enthusiastic way that I had not seen from the Apple iOS experts. “People are buying Windows [10] devices again as soon as they realise that it still has mouse and keyboard support and importantly USB 3.0 for printer, keyboard, mouse, and external monitor support – it is a no brainer.”

OK enough of the secret shopping – if you want a Surface get in now.

But it has been an interesting year for Microsoft – not the least is the transformation under Satya Nadella. Gone are the barmy, blustery, Ballmer years. Microsoft’s software is becoming increasingly operating system agnostic and mobile first – cloud first. It has risen above Apple in that it has far greater scope and influence on the computing ecosystem as a whole (Azure for example) instead of the closed Apple ecosystem.

Windows 10 update

On 29 July 2015 Microsoft introduced Windows 10. It has reached 9% market share (about 120 million at last announcement) – but to be fair Windows 7 has 56.11%, Windows 8.x has 14.03%, and XP still has 10.59% - a total for Windows of 90% of the desktop market share. Mac has about 5% and Linux etc., has about 5%.

The use of XP and Windows 7 is mainly in the corporate arena where replacement cycles are much longer and is it more difficult to migrate. Microsoft expects most Windows 8.x users will migrate to Windows 10 before the free deadline is over next June.

It is gaining traction with its single unified platform. Windows 10 on all devices works better than a mix of devices. Apple has iOS and OS X to make up its mix – and never the twain shall meet. OS X is more in danger of being supplanted by iOS than vice versa.

Windows Universal Apps system is now more appealing as these work on phone, tablet, desktop, Xbox, server and Windows 10 IoT.

Winner: Windows 10 because it will get a billion computers – more if you count W10M and its IoT version.

Windows Server

You have to distinguish between paid and free/low cost/open source operating systems. Linux and its variants are the leader by far in the free segment.

The best estimate I can find for paid Windows on premise servers is somewhere north of 50% and paid Linux is around 30%. Microsoft is well ahead in the cloud as a base for virtual machines. Of course Google uses a highly modified and specialised version of Linux in its cloud – it may as well be called Googux.

Winner: Free and paid Linux but Microsoft may be adopted more widely as enterprises move to Microsoft driven clouds supporting Office 365, Dynamics CRM, Business intelligence and Analytics, Windows 10 (OneDrive), and Windows IoT.

Productivity apps

Office suite continues to dominate on both PC and Mac – and recently its gaining more pace as a viable alternative on Android and iOS.

Gartner and other analysists predict that Office (and its Cloud version Office 365) will have over 60% of the market share, Google Docs (its largely cloud based) will have about 20-30% and the rest – including all the open source and Apple’s offerings – about 10-20%. “The segment of non-Microsoft users continues to rapidly shrink,” it says.

Winner: Microsoft by a long margin and that includes take up of Outlook and various other tools like Sway, Delve, Cortana, Skype, Skype for Business, Social networking integration, and analytics.

Windows 10 Mobile versus Android and iOS

It is too early to tell as the first ‘A$1000’ W10M Lumia 950 and 950XL were only delivered to customers on 7 December. The $200 Lumia 550 is not here yet.

My feedback from major software developers is the wait and see on W10M is over and we will see more Universal apps on this platform.

Corporates are saying the single platform is enticing especially where they develop in-house apps and want a corporate app store. They are also singling out mobile device management and security – although Apple is strong there too. Where Microsoft has it all over Apple is device cost – the new Lumia 550 at under $200 is very appealing for a mobile workforce and the Continuum feature on the 950/XL is compelling for some users.

Android is the clear winner with (figures approximates only) 80% market share, iOS with 15%, Windows Phone 8.x with 4% and the rest totalling 1%.

But Apple makes more money and it is the only supplier of iOS devices. You cannot deny that Apple has the street cred, appeal and apps. Android has a serious price advantage and apps and Windows 10M has serious features like Cortana, Windows Hello, and Continuum.

Winner: Windows 10 Mobile will take market share from Android and iOS if it gets corporate support but I can’t see that making more than a few percent change in the above figures. It is going to take the entire W10M OEM ecosystem to change the market share significantly.

Wearables

Apple has the best iOS smartwatch – it pairs only to an iPhone. There is no doubt that Apple redefined this category. In early November Canalys estimated that 7 million have been sold since launch and may reach 10 million by the end of 2015. Future estimates of 33.1 million for 2016 have been substantially downgraded to between a low of 10 million and a high of 20 million.

By comparison Samsung shipped about 300,000 of its old models last quarter (let’s say about 1 million all year) and this excludes the new Gear S2 that is frankly the best Android ecosystem smartwatch that may also go iOS very soon.

But according to the Daily Mail Australia the Apple Watch is a flop. It is now selling an average of 20,000 watches a day in its biggest market – the US (compared to the 200,000 per day at launch – a 90% decline), 66% are the cheaper Sport version, and less than 20% of the US$10,000 gold version have sold

Microsoft has Band 2 that is a fitness device and it does not compete in the smart watch market per se. Fitbit owns this market with about 4 million devices this year.

Winner: Apple of course but Samsung is a very strong contender if it gets iOS right.

A discussion on wearables would not be complete without mention of Microsoft HoloLens, Google Glass, Oculus and apologies to those I have missed. Apple does not have an announced product in this category. This technology is too early in development except to say that it is in two camps – virtual reality (VR) and augmented reality (AR).

VR requires an immersive experience – blocking out external stimulus. It will take off for games and perhaps video content. AR will take off for general use to augment reality by overlaying things like virtual screens, objects, and designs etc. AR will take off once the software and applications are common and perhaps the headset is smaller.

Winner: Microsoft by a very big margin. Its HoloLens has attracted interest and enthusiasm from academic, engineering, business, consumer et al as the portend of the future of computing. Google Glass is seen as yet another ‘output’ device.

TV

Apple has its streaming TV box. Earlier this year Tim Cook told Wall Street that it had sold 25 million Apple TV over the product lifetime. That’s up about 5 million since a similar disclosure last year. At best Apple TV is a placeholder for something bigger – perhaps its own TV network.

By comparison Roku (US) sold 10 million boxes last year, Google has a Chromecast, Amazon has Fire TV and there are countless Android HDMI TV sticks. These are much cheaper than Apple TV and essentially do the same thing with less restrictions on where the content comes from.

Microsoft has an Xbox One strategy which has approximately 50% of the games console market selling about 5 million of this new model. Xbox Live users are up 10% to 39 million this year. However, Microsoft’s move to W10 for Xbox, the ability to play popular Xbox games on a PC, and its entertainment hub replete with dual TV tuners could see it taking over the lounge room as an OTT (Over the Top) content driver. Apart from protecting Digital Rights Issues (which Apple does too) it is pretty content agnostic.

Sony PlayStation is ahead of Xbox but certain countries skew the figures – in Japan its about 90% Sony. It has a US$100 Vita TV strategy for PlayStation 4 and Sony has a strategy to push into the TV market leveraging its Motion picture assets. Sony has a chance at OTT content broadcast – whether it has the commercial clout to make a dent is the question.

Winner: Open systems that use content from multiple sources but Microsoft could be the disruptor.

Conclusion

While Microsoft does not have any market to itself it does have products in all markets. The crown for innovation must go to it, the crown for branding/market share improvement must go to Samsung, and the crown for brand credibility and loyalty must go to Apple.

Whether Microsoft’s innovation will turn into revenue is yet to be seen but it portends a bright future if its CEO, Satya Nadella and its senior management team keep charting this course.

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Ray Shaw

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Ray Shaw ray@im.com.au  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!

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