Microsoft’s Naked PC problem

This is a piece that I wrote with Gerry Shih in Beijing about Microsoft’s challenges in emerging markets beyond the recent raids.

‘Naked PCs’ lay bare Microsoft’s emerging markets problem

BY JEREMY WAGSTAFF AND GERRY SHIH

Sun Aug 10, 2014 9:42pm EDT

(Reuters) – On a trip to Beijing a decade ago, Bill Gates was asked by a senior government official how much money Microsoft Corp made in China. The official asked the interpreter to double check Gates’ reply as he couldn’t believe the figure was so low.

It’s a problem that hasn’t gone away. Indeed, Microsoft’s current issues in China conceal a deeper problem for the U.S. software giant – despite the popularity of its Windows operating system and Office suite, few people in emerging markets are willing to pay for legitimate copies.

This not only costs Microsoft in lost revenue, but is also holding back the spread of its newest Windows 8 version – analysts say even buyers of pirate software prefer older versions. According to StatCounter, a website that tracks what software is loaded on Internet-connected computers, more than 90 percent of PCs in China – now the world’s biggest market – are running pre-8 versions of Windows.

Microsoft is trying to tackle this. This year it’s offering Windows 8 at a discount to PC manufacturers who install its Bing search engine as the default. And it’s giving away versions of Windows 8 for phones and some tablets.

But, as the industry shifts from desktop to mobile, the cloud and free or cheap software, China sums up both the old and new challenges Microsoft faces in making money in emerging markets – and, increasingly, in developed ones.

“The great danger for the company is that what has happened to them in emerging markets – basically no revenue from new PCs because of piracy – is not far off what’s happening everywhere,” said Ben Thompson, the Taiwan-based author of stratechery.com, a popular technology blog.

CORE COST

For sure, China is a major, and unique, headache for Microsoft. Many of the problems are tied to a broader push by the Chinese government to limit foreign firms’ dominance and encourage local technology firms to become viable competitors.

After years of healthy relations with Beijing, Microsoft last month was suddenly targeted by anti-monopoly regulators who raided its China offices as part of a price-fixing investigation.

But the spats mask the fact that Microsoft has never really cracked how to get people in emerging markets to pay for its software. The company rarely breaks out revenues by geography, but it has provided clues about the size of the problem.

In 2011, then CEO Steve Ballmer reportedly told employees that, because of piracy, Microsoft earned less revenue in China than in the Netherlands – with 1 percent of its population – even though China bought as many computers as the United States.

According to the BSA anti-piracy lobby group that Microsoft co-founded, emerging markets account for 56 percent of all PCs in use, and 73 percent of software piracy. Of the $77.8 billion revenue Microsoft generated in its 2013 financial year, China, Brazil and Russia each “exceeded” $1 billion, according to a Microsoft presentation. For comparison, Apple Inc generated $27 billion in Greater China, which includes Hong Kong and Taiwan, in its 2013 financial year.

For Microsoft, that’s a lot of lost revenue from the heart of its business. “Windows and Office are still very much the core of Microsoft,” says Sameer Singh, an India-based analyst.

The most recent breakdown by Microsoft of its results by product line – for the first quarter of fiscal 2014 – shows that 56 percent of its global revenue and 78 percent of operating profit came from Windows and Office.

Microsoft doesn’t just lose the revenue from pirate copies, it also loses access to customers who might buy other Microsoft products that work with or on top of Windows and Office.

Across most markets, Windows and Office account for more than half of revenues, says Andrew Pickup, Microsoft’s Asia PR chief. This, analysts say, is because many of Microsoft’s other products, such as Exchange and Windows servers, depend on customers already using Windows and Office.

“The Microsoft ecosystem is obviously pretty interconnected,” says Jan Dawson of U.S.-based Jackdaw Research. “So it makes sense that the proportion of revenue would be similar in emerging markets.”

NAKED PCS

Part of the intractability of piracy in emerging markets is that each part of the chain poses a problem.

For PC makers working on wafer-thin margins the operating system is one of the costliest parts of the machine, while mom-and-pop shops which form the bulk of retailers in such markets can’t afford to turn away price-sensitive customers who are comfortable buying pirate software.

The problem, therefore, starts with computer makers, Singh says, since “convincing them to ship every PC with Windows pre-installed is difficult.” Margins on PCs for a company like Lenovo Group Ltd are “near single digits,” says Bryan Wang, an analyst at Gartner.

The result is that up to 60 percent of PCs shipped in the emerging markets of Asia, says IDC research manager Handoko Andi, have no Windows operating system pre-installed – so-called ‘naked PCs’, which usually instead carry some free, open source operating system like Linux. That compares with about 25 percent in the region’s developed markets like Japan and Australia.

A quick scan of Taobao, the popular Chinese e-commerce site operated by Alibaba, shows a vast selection of PCs shipped with Linux rather than Windows. Once the machines hit the retailers, it’s hard to tell where legitimate software stops and piracy begins.

On a recent morning in Zhongguancun, a teeming electronics hub in north Beijing, shopkeepers offered to bundle what they said were legitimate versions of Windows with a new laptop, either for free or the equivalent of about $30.

Microsoft began lobbying Lenovo in 2004 to stop shipping naked PCs, but the Chinese firm countered that its margins were too low, a person familiar with the negotiations said. Two years later – just days before then-President Hu Jintao visited Gates’ U.S. home – China announced a new law requiring PCs to be shipped with operating systems. That merely dented piracy rates, which fell to 79 percent in 2009 from 92 percent in 2004, according to the BSA.

Lenovo said it reached an agreement with Microsoft in June of this year to ensure that Lenovo PCs sold in China would come pre-installed with a genuine Windows operating system.

“MOBILE ALSO-RAN”

Microsoft’s new approach is to push the price of Windows low enough to make it worth a PC maker’s while. The cost of a Windows license has fallen to below $50 from as high as $150, said IDC’s Andi, taking Microsoft down to “levels where they’ve never competed before.”

Microsoft’s Pickup said it was too early to gauge take-up.

In any case, making Windows cheaper for PCs is just part of a broader response to deeper shifts in the industry. The rise of mobile, tablets, cloud-based services and free operating systems has marginalized Microsoft and challenged its business model.

While Windows is on more than 90 percent of traditional computers – according to data compiled by analyst Ben Bajarin – that figure drops to below 14 percent once mobile devices such as phones and tablets are factored in, estimates Gartner.

More than half those devices run Google’s Android mobile OS, which is effectively free to handset and tablet makers. Apple, a key player in all types of devices, gives away upgrades to its operating systems for free.

Pickup says Microsoft has listened to phone makers’ complaints and relaxed what hardware they need to install the mobile version of Windows. It has also made the operating system free on any mobile device of 9 inches or less.

Taken together, the moves are “about bringing down the cost as more and more of the populations in these emerging markets are having their first computing experience,” Pickup said.

These are significant concessions, analysts say, but Microsoft will have to learn to be a bit player, where its software and services run on other people’s operating systems.

“The biggest threat to Microsoft,” Dawson said, “is the shift from a PC-based world where Microsoft dominated to a mobile world where Microsoft is an also-ran.”

(Additional reporting by Noel Randewich in SAN FRANCISCO and Bill Rigby in SEATTLE; Editing by Ian Geoghegan)

Software as Silo

Software is a funny thing. How important is it?

Apple has just announced it’s giving most of its away for free — effectively costing it some $900 million in the short term. Samsung has just convened its first developer conference in the hope of persuading more people to write software for its devices. Microsoft, known for its Office and Windows software, has just bought a phone manufacturer — Nokia — and promises a new raft of its lacklustre Surface tablets. Google, known for the money it makes off its software, has promised more Glasses, and owns a cellphone maker, Motorola. Amazon, which sells stuff, also makes tablets and e-readers, and is rumoured to be getting into a phone.

What companies are increasingly recognising is that software is everything but not on its own. To succeed in this new world of ubiquitous devices, you need to own as much as possible of what is loosely referred to as the ecosystem. That means hardware, software, and the services that make both hardware and software come to life.
Think a phone where you can take videos, edit them into a short movie at literally the push of a button, and then share them with friends with another push. Or a tablet that lets you and control see your company’s inventory or fleet of trucks in real time.

But this isn’t easy. It requires expertise in very different areas — areas that until recently were regarded as best considered separate industries. Focus on what you’re good at, the mantra used to be. Now, it’s more like: you’ve got to be good at all these things, or you’ll die. Think HTC, which makes great devices but hasn’t succeeded in building the software and services that makes those devices stand out.

Some companies can be good at all three, but it’s a fast-moving game. Think BlackBerry, which was good at both hardware, software and services for a while, with its email service, its own operating system and its keyboard-bound devices. But the world moved on, and BlackBerry didn’t move quickly enough.

So now it looks like Apple is heading the pack. But it too, is vulnerable. The world has been captivated by the phones and tablets it creates, but some detect a sense the company, without Steve Jobs, quite understanding where to go next. It’s likely to be an Apple TV, which should be interesting.

Samsung is late to the game, dangerously so. It dominates the world of phones, but has been slow to build software and services to bridge those devices to its other products — computers, TVs, fridges, etc. Only this week has it really embraced developers and tried to make it easy for them to do this. Samsung’s future hinges in being able to rid itself of its dependence on Google’s Android operating system — either by building an operating system of its own, or a suite of apps that run on top of it that make a Samsung device so much more valuable than one from LG, Sony, HTC or Huawei.

Then there’s Microsoft. By making its operating system and much of its software free, Apple has thrown down the gauntlet to its old rival. It’s not saying these products have no value: it’s saying that software is what makes hardware compelling, and so we’re effectively making the two one single product. For Microsoft, still largely a software player, that’s quite scary. No wonder the company is betting heavily on building its own hardware.

In some ways this is good for the consumer, in some ways not. On the one hand we’re already seeing the hardware basically controlling the software — automatically updating itself, optimizing itself for the user. On the other, the goal here is clear: bind the user to a single stack of hardware, software and services, increasingly isolated from each other. A Samsung phone may be a great device to control your TV with, layering little apps atop the screen, but don’t expect it to work with your LG smart TV. And don’t bother trying to use Apple’s AirDrop feature to send a file to your Samsung phone.

The bottom line is that these companies are being hugely innovative, moving the puck at impressive speed. But in their efforts to escape becoming commodities, they’re pushing us into silos. Nice silos, very nice silos, but silos that make me think more of the past than the future.

Asha to Ashes: Microsoft’s Emerging Markets Conundrum

A piece I wrote with Devi in Delhi, and the help of a couple of other colleagues. 

Asha to Ashes: Microsoft’s emerging market conundrum

By Jeremy Wagstaff and Devidutta Tripathy

SINGAPORE/NEW DELHI | Thu Sep 5, 2013 9:22pm EDT

(Reuters) – Microsoft Corp’s acquisition of Nokia’s handset business gives the software behemoth control of its main Windows smartphone partner, but leaves a question mark over the bigger business it has bought: Nokia’s cheap and basic phones that still dominate emerging markets like India.

Microsoft Chief Executive Steve Ballmer has said he sees such phones – of which Nokia shipped more than 50 million last quarter – as an entree to more expensive fare.

“We look at that as an excellent feeder system into the smartphone world and a way to touch people with our services even on much lower-end devices in many parts of the world,” he said in a conference call to analysts on Tuesday.

But analysts warn that’s easier said than done.

The problem, said Jayanth Kolla, partner at Convergence Catalyst, an India-based telecom research and advisory firm, is that Microsoft simply lacks Nokia’s retail and supply chain experience in the Finnish company’s most important markets.

“The devices business, especially the non-smartphones business in emerging markets, is a completely different dynamic,” he said.

Kolla pointed to the need to manage tight supply chains, distribution, and building brands through word-of-mouth. “Microsoft doesn’t have it in its DNA to run operations at this level,” he said.

India is a case in point. Nokia has been there since the mid 1990s and the country accounted for 7 percent of its 2012 revenue while the United States generated just 6 percent, according to Thomson Reuters data. Its India roots run deep: it has a presence in 200,000 outlets, 70,000 of which sell only its devices. One of its biggest plants in the world is in the southern city of Chennai.

For sure, Nokia has slipped in India as elsewhere: After nearly two decades as the market leader it was unseated by Samsung Electronics Co Ltd in overall sales last quarter.

But it still sold more of its more basic feature phones.

As recently as last October, market research company Nielsen ranked it the top handset brand. The Economic Times ranked it the country’s third most trusted brand.

LOYALTY RUNS DEEP

In a land of frequent power cuts and rugged roads, the sturdiness and longer battery life of Nokia’s phones have won it a loyal fan base – some of whom have stayed loyal when trading up.

Take Sunil Sachdeva, a Delhi-based executive, who has stuck with Nokia since his first phone. He has just bought his fifth: an upgrade to the Nokia Lumia smartphone running Microsoft’s mobile operating system.

“Technology-wise they are still the best,” he said of Nokia.

But Microsoft can’t take such loyalty for granted. Challenging it and Samsung are local players such as Karbonn and Micromax, which are churning out smartphones running Google Inc’s Android operating system for as little as $50.

Such players are also denting Nokia’s efforts to build its Asha brand, touchscreen devices perched somewhere between a feature phone and a smartphone.

Nokia shipped 4.3 million Asha phones globally in the second quarter of this year, down from 5.0 million the previous quarter.

“The sales performance of the Asha line has been quite poor,” said Sameer Singh, Hyderabad-based analyst at BitChemy Ventures, an investor in local startups. “With increasing competition from the low-end smartphone vendors, I’m unsure how long that business will last.”

That leaves the cheap seats. Singh estimates that the Asia Pacific, Middle East and Africa accounted for two-thirds of Nokia’s feature phone volumes in the last quarter, at an average selling price of between 25 to 30 euros ($32.99 to $39.59).

“I don’t see how Microsoft can really leverage this volume,” he said. “The market is extremely price sensitive and margins are racing into negative territory.”

TOO BIG TO IGNORE

The quandary for Microsoft is that while the basic phone market may be declining, it may simply be too big to ignore.

“If you look at markets like India and Indonesia, more than 70 percent of the volume comes from the feature phone business,” Anshul Gupta, principal research analyst at Gartner said. “It’s still a significant part of the overall market.”

That means that if Microsoft wants to herd this market up the value chain to its Windows phones, it needs to keep the Nokia and Asha brands afloat – while also narrowing the price gap between its smartphones and the feature phones and cheap smartphones.

Microsoft has hinted that lowering prices of smartphones would be a priority. The Windows Phone series includes the top-end Lumia 1020, which comes with a 41-megapixel camera, while it also sells simpler models such as the Lumia 610 and 620 aimed at first-time smartphone buyers.

“The lower price phone is a strategic initiative for the next Windows Phone release,” Terry Myerson, vice president of operating systems said on the same conference call, while declining to provide details.

An option for Microsoft, analysts said, would be to shoe-horn services like Bing search, Outlook webmail and Skype, the Internet telephony and messaging application, into the lower-end phones as a way to drive traffic to those services and make the devices more appealing.

“So you can bundle services with these low-end products and that way you can reach a wider audience,” said Finland-based Nordea Markets analyst Sami Sarkamies.

But in the meantime Microsoft needs to brace for assault on all fronts as emerging market rivals see an opportunity to eat further into Nokia’s market share. In India, said Convergent Catalyst’s Kolla, cheap local Android brands have been held back by Nokia’s strong promotion of its mid-tier Asha brand.

“Now, I expect them to pounce,” he said. ($1 = 0.7577 euros)

(Reporting By Jeremy Wagstaff in Singapore, Devidutta Tripathy in New Delhi, Bill Rigby in Seattle, Ritsuko Ando in Helsinki; Editing by Emily Kaiser)

Cuckoonomics

Here’s a piece I wrote for the BBC which went out today. (They often air some time after I’ve recorded them.) 

It’s very hard to be in the technology business these days because you don’t know when someone is going to be a cuckoo, A cuckoo, in case you are not an ornithologist, are what are called brood parasites, which means they lay their eggs in another bird’s nest — effectively outsourcing the whole brooding process.

Technology players have been playing this game for a while. The problem is that no one is quite sure who is the cuckoo, who is the sucker and what’s the nest. I call it cuckoonomics.

Take the recent spat between Apple and Google. Google was quite happy to have its Maps software on an iPhone — after all, it makes more money from an iPhone than it does from a phone running its own Android software — but it didn’t want to give away the farm. So it wouldn’t allow a feature which allowed users to navigate turn by turn. So Apple ditched the whole thing and went, somewhat disastrously, with its own version of maps.

Google in this case thought it was being a cuckoo, and the iPhone was the nest. But it didn’t want iPhone users enjoying the product so much that its own users jumped ship. 

In the old days technology was about hardware. Simple. You make something, put a sticker on it, and sell it. That’s all changed. Now it’s about software, about services, about experience. I may run an expensive telecommunications network but I can’t control what goes on it. Cuckoos offering video, games, messaging etc flock onto it, parking their eggs and reaping the benefits.

It happens in more subtle ways, though the implications may be just as drastic. Microsoft is about to launch a new version of its operating system called Windows 8. It’s quite quite different from before and a major gamble; not surprising, because Microsoft’s once cushy nest is being dismantled by Macs, mobiles and tablets.

It’s a brave attempt by Microsoft, but what’s interesting to me is how they’ve aimed their sights not at Apple but at Google. Microsoft have baked search so far into their new operating system they hope it will be where we do most of our stuff. From one place we can search all our apps, the web, our contact list, our saved notes and documents.

Of course this isn’t new. You can do this on a Mac, on an iPad, on an Android phone, even on a Windows PC. But it’s not been quite as well done before.

I’ll wager if Windows 8 catches on this will be one of its biggest features, and Google as a result will take a hit. Which is ironic because it’s been Google who have used cuckoonomics against Microsoft for more than a decade, gradually building a library of services around search that have ended up taking over Microsoft’s nest. Think Gmail taking over Outlook and Hotmail; Docs taking over Office, and then eventually the Chrome browser taking over Internet Explorer. 

What’s intriguing is that Microsoft is also trying to the same trick with Facebook. Windows 8 dovetails quite nicely with your Facebook stuff but at no point does it look like Facebook. I couldn’t find a Facebook app for Windows 8 but it didn’t seem to matter; instead all my Facebook friends, updates, photos and messages all appeared within Windows 8 — with rarely a Facebook logo in sight. 

Which cuckoo is going to win? 

The Browser Doesn’t Matter So Long As It Goes to Google

The whole Google/Firefox issue is an interesting one: Google is the default search engine in Firefox because it pays to be there. The three-year deal expired in November 2011. Would they renew? Some thought no. They were wrong.

Not only has Google renewed the deal whereby it effectively bankrolls Firefox, but it’s the first time that it’s continued the deal after launching its own browser, and the first time it’s done so after Chrome is actually has as many users, according to some measures, as Firefox.

On top of that, there are reports from AllThingsD that the deal is worth $300 million a year, more than three times what they were paying under the previous arrangement. What gives?

Several theories:

We’re Partners

The official version is that Google and Firefox are buddies, after the same thing: the betterment of the web [ReadWriteWeb].

Bidding War

One is that Microsoft and possibly Yahoo! were after the deal. Makes sense: Microsoft is desperate to gain market share for bing, while Yahoo! is, well, desperate.

Eyeballs

Another theory has it that Google is basically after eyeballs, and doesn’t care how it gets them. Paying for them by getting to be the default search brings oodles of traffic. This is definitely true. I reckon that Firefox had as many as 500 million users in 2010. If 90% of those users don’t switch their default search that’s worth a lot of money to Google, and as ExtremeTech has pointed out, makes Firefox the biggest single source of traffic to Google (I calculate they paid 20 cents per user, whether or not they actually use Google.)

Antitrust

There are other theories. One is that Google is worried about antitrust issues [David Ulevitch, Twitter feed, via paris lemon] and therefore wants there to be a competitor about. This argument has some merit: expect Google Chrome/Chrome OS and Android to converge more and more, which is bound to attract the attention of regulators.

There’s no question that Google benefits any which way this goes.

  • It’s clear that Microsoft has failed to dislodge Google as the search engine of choice: While its market share in the U.S. is around 15% [WinRumors, quoting comScore] globally it’s tiny: less than 4% on desktop browsers, 1% on mobile devices [both from NetMarketShare]. In other words, Google doesn’t need to worry that Internet Explorer shifting traffic to bing. While in decline IE is still the most popular browser at about 40% [StatCounter].
  • Google doesn’t really care what browser people use. It would prefer they use Chrome, but as long as the browser points to Google, who cares (as Deng Xiao Ping said, who cares what colour the cat is, as long as it catches mice?). Which is why Google are just as happy to do a deal with Apple (6%) and with Opera (2%). In fact, the only browser that doesn’t have Google as its default search engine is IE. (Apple talked about cutting a deal with Microsoft last year [Daring Fireball], but it was probably a negotiating tactic. DF says he reckons the Google/Safari deal was worth $2 million a month.

Finally, then, if the new figures are true–that Google is now paying $300 million a year for the Firefox traffic–is that money well spent? Well, it’s not easy to calculate. But let’s assume that Firefox traffic continues to fall at its present rate. So in 2012 it accounts for only 21% of the market. Likely number of Internet users in 2012? Anyone’s guess, but probably about 2.4 billion? (It was 2.1 billion in March 2011, according to Internet World Stats.)

So Firefox potentially should be able to bring at least 440 million users to the table. So that’s $0.68 per user. Quite a bit more than what it’s currently shelling out–but less than what it’s paying Opera, according to my very rough calculations. Opera said it received $41 in ‘Desktop revenue’, the bulk of which it says comes from ‘search and commerce’. Assuming all of that, for the sake of argument, is money from Google for search, then using their official figure of 51 million desktop users in 2010, Opera was getting $0.80 per user from Google. (I realise that might be inflated given the ‘commerce’ component.)

That would seem to suggest that actually Google was getting users from Firefox pretty cheaply. Even if my calculations for Opera are a tad high, the new deal with Google, valuing a user at about 65 cents, doesn’t seem overly expensive. We don’t know how much Google pays Apple, but the $2 million a month means they’re the cheapest on the block, costing $0.15 per user according to back of the envelope calculations.

Indeed, these are all just back of the envelope calculations, but I reckon they offer a bit of insight into the economics of this part of the game. Remember Google made $9.72 billion in the last quarter [Google corporate pages], and paid out $383 million to “certain distribution partners and others who direct traffic to our website” in that quarter. That’s close to $1.6 billion over a year, putting the $300 million it’s reputed to be committed to paying Firefox every year in perspective.)

A good account of the economics of all this can be found at ExtremeTech.

Quaintness in Salt Lake

(This is the script for a piece I did for the BBC World Service. Posted here by request. Podcast here.)

Something rather quaint is going on in a Salt Lake City courtroom. A company called Novell, who you’d be forgiven for not having heard of, is suing Microsoft over a product called WordPerfect, which you also may not have heard of, which it says was hobbled from running on something called Windows 95 to protect its own product, called Microsoft Word.

To be honest, you don’t need to know the ins and outs of this Microsoft law suit; nor do you really need to know much about Novell—once a giant in word processing software, and now a subsidiary of a company called The Attachmate Group, which I had never even heard of. Or, for that matter Windows 95—except that once upon a time people used to stay up all night to buy copies. Sound familiar, iPad and iPhone lovers?

It’s weird this case is going on, and I won’t bore you with why. But it’s a useful starting point to look at how the landscape has changed in some ways, and in others not at all. Microsoft is still big, of course, but no-one queues up for their offerings anymore: Indeed nobody even bought Vista, as far as I can work out. But back then, nearly every computer you would ever use ran Windows and you would use Microsoft Office to do your stuff. You couldn’t leave because you probably didn’t have a modem and the Internet was a place where weird hackers lived.

Now, consider this landscape: Apple make most of their money from phones and tablets. Google, which wasn’t around when Windows 95 was, now dominate search, but also own a phone manufacturer, have built an operating system. Amazon, which back then was starting out as a bookseller, is now selling tablets at cost as a kind of access terminal to books, movies, magazines and other things digital. Facebook, which wasn’t even a glint in Mark Zuckerberg’s 11 year old eye at the time, is now the world’s biggest social network, but is really a vast walled garden where everything you do—from what you read, what you listen to, as well as how well you slept and who you had dinner with—is measured and sold to advertisers.

All these companies kind of look different, but they’re actually the same. Back in 1995 the PC was everything, and so therefore was the operating system and the software that ran on it. The web was barely a year old. Phones were big and clunky. So Microsoft used its power to dominate to sell us what made the most money: software.

Now, 15 or 16 years on, look how different it all is. Who cares about the operating system? Or the word processor? Or the PC? Everything is now mobile, hand-held, connected, shared, and what was expensive is now free, more or less. Instead, most of these companies now make their money through eyeballs, and gathering data about our habits, along with micropayments from data plans and apps, online games and magazines.

And to do this they all have to play the same game Microsoft played so well: Dominate the chain: Everything we do, within a Hotel California-like walled garden we won’t ever leave. So my predictions for next year, most of which  have been proved true in recent days : A Facebook phone which does nothing except through Facebook, an Amazon phone which brings everything from Amazon to your eyes and ears, but nothing else, an Apple-controlled telco that drops calls unless they’re on Apple devices. Google will push all its users into a social network, probably called Google+ and will punish those who don’t want to by giving them misleading search results. Oh, and Microsoft. I’m not sure about them. Maybe we’ll find out in Salt Lake City.

Encarta’s Passing: Harbinger of Redmond Doom?

Microsoft has announced that Encarta, its digital encyclopedia, will be dead by year’s end. First off, hands up who thought it had died long ago?

Secondly, and before we get on to the whole Wikipedia thing, I’d like to make a more general comment about Microsoft: its online stuff is awful, and Encarta is no different. There are already plenty of people musing on why Encarta died, but I’d say one good reason is that it’s hard to access and get your mind around as pretty much every Microsoft online property.

What worries me is that this isn’t a small problem anymore. It seems indicative of Microsoft’s’s online strategy, or lack of it, and seems to suggest they’re having bigger problems than we thought.

First, you visit its webpage. Well you don’t actually. The highest result in Google is the online version, parked at MSN.com: encarta.msn.com. Before we go there, you may notice that lower down the search results, past an MSN dictionary—which may or may not be Encarta—and the Wikipedia entry on Encarta (already updated to include Encarta’s announcement) lies another Microsoft site: Encarta the product. (Interestingly, its immediately followed by articles discussing its demise, giving you a pretty good idea of how little Encarta has been discussed or linked to up until now. That such articles could rise so quickly on Google is a surprise.)

The latter website is for the downloadable software. Interestingly, no mention there that it’s a product that is dead. (By contrast, there’s mention of “web encyclopedias”, which it contrasts itself to:

Editorially approved content you can trust. In contrast to many web encyclopedias, the authors of the 60,000 plus detailed articles in Microsoft Encarta Premium 2008 are experts in their field. Your kids get relevant age-appropriate information from reliable sources.

(Many? How many web encyclopedias are there?)

Maybe it’s a glitch but try clicking on any of the links to buy said software and you get an error from DigitalRiver, the online store:

image

Another example, for me, of how Microsoft online is a shambles.

Indeed, visit the first Encarta-branded link you see a different kind of logo:

image

versus

image

and a page that hums with mediocrity: a slice of Flash that cycles between several nothing teasers about nothing articles, tabs above that, confusingly, have one for encyclopedia—so is online Encarta not just an encyclopedia?—and some more pretty lame teasers “Beware dihydrogen monoxide! Relax, it’s just water. What other scientific pranks have people pulled?” better suited to some magazine website.

Clicking on the encyclopedia tab takes you a page that is a travesty of design and revealing about the state of the problem Microsoft faces:

image

Two big MSN ads tell you they’re not pushing much ad inventory.The blank middle bit, filled only by the less than heplful instruction “Select a type of article to see a list of categories.” suggests someone there hasn’t done Design 101.

Click on the first link, to Encyclopedia Articles and you’re still hunting: “Select a category to see a list of subcategories.” By then I’m guessing you’ve probably lost interest, both in Encarta and this blog post, so I’ll leave it there. But I suspect that this poor branding, presentation, navigation and lack of non-inhouse ads has as much to do with Encarta’s demise as anything else.

My point: Is this just Microsoft scrambling around to find its way online (still) or is it a symptom of a deeper malaise at Redmond that is going to usher in a slew of announcements like Encarta’s? If so, what is next for the chop?

I’d submit a couple of candidates off the top of my head:  played with Microsoft Office’s Live plugin the other day, that supposedly lets me save and collaborate on documents online. Boy did that one suck! Then there’s FolderShare, which used to be a great product—sharing folders and files online between users and computers—which is now called Windows Live Sync, and which doesn’t seem to work. At all. (I’ve tried it on a few computers, and despite installing the software, you’re still prompted to install it even when it’s running.)

So disappointing. I’d imagined Microsoft eventually embracing and extending online but all I see is a congealed mess of half-products that can’t decide what they’re called, and where they belong. Critical though though I’ve been of Microsoft in the past, I hate to see this.

The Limits of the Cloud

Microsoft’s FolderShare, a folder synchronizing tool that I’ve recommended in previous columns, is going off the air for up to three days in the middle of the week “for server upgrades”:

FolderShare will be offline for a little while (48-72 hours) next week for some server upgrades.

  • The outage begins Tuesday, June 17, at 6 PM Pacific Times (UTC-7).
  • We hope to be back online by 6 PM Friday at the latest.

I share some of the disbelief of commenters to the blog post and ZDNet’s Michael Krigsman:

Users are attracted to services such as FolderShare for two reasons: useful features and the promise of always-on reliability. Remove reliability from the equation and the service’s value plummets.

(Zoliblog also points to some odd, unexplained changes in the way FolderShare works, whereby the index of files you’re syncing between two computers appears to now be stored on Microsoft’s servers. Whether this is important remains to be seen.)

The bigger point is this: If we are genuinely going to shift computing to the cloud—move our stuff online, think in terms of being able to compute from anywhere, anytime—then we need to have reliable access to our files and accounts.

That Microsoft, of all people, can switch off such access for up to three days in the middle of the week highlights the inadequacies of that thinking. In the longer run it may be that we are in error for considering relying on cloud computing, and Microsoft, for access to our stuff.

(The arguments that it’s free, and in beta, don’t wash. Imagine if Google took Gmail or Google Docs down for three days: beta no longer means broken, at least not for the majority of a working week.)

Windows Live FolderShare Team Blog: Planned system outage starting June 17

Lame PR Responses #34,223(b)

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When independent blogger Mary Jo Foley, who knows more about Microsoft than Microsoft does, interviewed the company’s new Corporate VP of its Searching and Advertising Group recently, she was told that Microsoft had recently launched an ad-funded version of Microsoft Works, the application suite you think will be a cheap alternative to Office but turns out not to be.

She couldn’t find it online anywhere so, she asked Microsoft PR. Which is always a mistake:

I’ve asked Microsoft for more information on the new ad-funded Works suite. No word back yet. Update: Even though Microsoft’s own vice president discussed the product, no one will talk. The official comment, via a Microsoft spokeswoman: “We’re always looking at innovative ways to provide the best productivity tools to our customers, but have nothing to announce at this time.”

Agh. These kinds of mealy-mouthed, knee-jerk-and-yet-probably-took-all-day-to-form, smug, self-promoting-and-yet-information-free responses drive me nuts. How many people had input on that particular phrase?  Thirty? How many emails had to exchange hands in the crafting? Forty? And how, exactly, does this help the journalist? Or, for that matter, the reader?

And don’t get me started on how a VP statement (“Microsoft Works has already been released as an ad-funded product”) is then throttled into submission as a slab of slippery PR perch, flailing on the floor of the meaningless drivel wet-market. How dysfunctional is that?

Poor Ms. Foley. Spare a thought for someone who has dedicated themselves to trying to make some sense of Redmond’s utterances. I only have to sit through the occasional PowerPoint barrage of buzzwords, cliches and tautologies spewing from the mouths of identikit Microsoft promoters wearing Joe 90 glasses. She has to do it on a regular basis.

» Microsoft Works to become a free, ad-funded product | All about Microsoft | ZDNet.com

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Piracy Helps Some Countries Grow

One can only imagine Bill Gates’ discomfort: Standing silently as the Romanian president told the world that pirated Microsoft software helped his country become what it is:

Pirated Microsoft Corp software helped Romania to build a vibrant technology industry, Romanian President Traian Basescu told the company’s co-founder Bill Gates on Thursday.

“Piracy,” Reuters quoted him as saying during a joint news conference to mark the opening of a Microsoft global technical center in the Romanian capital, “helped the young generation discover computers. It set off the development of the IT industry in Romania.” True, but as Reuters points out, 70 percent of software used in Romania is pirated and salesmen still visit office buildings in central Bucharest to sell pirated CDs and DVDs.

(And to be fair to the prez, he did actually call piracy “a bad thing”, according to another report by the AP, and said that “became in the end an investment in friendship toward Microsoft and Bill Gates, an investment in educating the young generation in Romania which created the Romanians’ friendship with the computer.”)

Actually I’ve long had the sneaking suspicion that (a) this is true. In places like Thailand, Indonesia, Malaysia, Philippines etc, the impressive and attractively priced range of pirated software available raises local savvy and interest in computing. When you can buy 100 software titles for the price of a Coke, what’s not to like? And this brings me to (b): the likes Microsoft, I suspect, actually don’t mind this situation too much, or at least may not hate it as much as they say.

I’m not the first to suggest this: Microsoft knows it can’t sell legit copies of Windows or Office to every user in these places. So it gives away what it can, or at least sells at a steep discount, to youngsters. Businesses it tries to wrestle to the ground. The rest it writes off. Sure, it would be great if lots of people bought legit copies, but better that younger people are getting hooked on it, rather than to the opposition (Linux, Ubuntu etc.) One day they’ll pay.

I’ve often wondered, for example, whether folk like Adobe and Microsoft actually aren’t at cross purposes. Sure, they’re both members of the Business Software Alliance, but whereas Microsoft know that it’s better to get a nation hooked on Windows even if it’s on pirate copies than to crack down and plunge it into the hands of the Open Source brigade, for Adobe it’s a different story. No one is really going to buy a copy of Photoshop ($400-$700), so the idea of getting them hooked doesn’t really count. Better to crack down as hard as possible, so those few who really do need it cough up. Better 10 legit copies sold now than 100 possible sales later.

Is that why Bill didn’t say anything?