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Daring Fireball is wrong about Microsoft’s weakness

I am, you’ll have noted, an argumentative sod. This is a great source of irritation to my dear other half, who rolls her eyes as I shout at the television or Internet. But sometimes, you read something and… well… you just have to respond.

Such is the case with John Gruber’s post on “Microsoft’s long, slow decline“. Now I should make this clear: John’s a very smart fellow and a terrific writer. I have huge respect for him. But his post is also riddled with more than a few canards and non sequiturs which make it sound like something is happening which, honestly, isn’t.

John conflates two key pieces of data. First Microsoft’s (pretty rubbish) recent financial results, and secondly Apple’s apparent dominance of the $1,000+ PC market, and makes of them a salad of doom for Microsoft. He concludes:

“I’m not arguing that Microsoft will collapse. They’re too big, too established for that to happen. I simply think that their results this quarter were not an aberration, but rather the first fiscal evidence of a long, slow decline that began several years ago.”

First, let’s look at the arguments about Microsoft’s financials. As you may have noticed, there’s a bit of a global recession going on at the moment. Microsoft claims this is the reason for its issues. Of course, they would say that wouldn’t they – and John makes the reasonable point that other parts of the “tech market” aren’t suffering:

“One argument is that the fault lies with the global economy, not Microsoft itself. (This seems to be the argument Microsoft’s executives are making.) But not every tech company is suffering. Google is doing just fine, andApple reported record non-holiday-quarter numbers for its just-ended quarter.”

We can safely ignore Google. Google isn’t a tech company, it just gives the appearance of being one (as I’ve said many times before, it’s really in the business of ad sales, like any publisher – it doesn’t sell technology). It doesn’t make operating systems, except for Android (from which it receives no revenue) and the vapourware non-OS Chrome. Comparing the performance of Microsoft to Google is like comparing Microsoft to General Motors, and claiming that Microsoft is doing super-well in the recession.

And then we come to Apple:

“Apple operates in the same economy Microsoft does, and Mac sales areup. And the numbers from the aforementioned report by NPD are simply astounding. It’s worth noting, though, that NPD’s report is specifically about retail computer purchases; Wilcox’s story doesn’t make that clear. But that they don’t represent all computer purchases doesn’t mean they aren’t astounding figures.”

That “retail” thing is a massive issue, and the key to comparing Apple with Microsoft. Because, of course, a huge swathe of Microsoft’s revenue comes direct, either via direct sales of computers with Windows (Dell, which sells a quarter of all the computers sold in the US, doesn’t show up in these figures because it doesn’t have a significant retail presence) or volume licensing of Windows upgrades and Office to business. Compare that to Apple, which has aggressively grown its retail presence – it now has over 200 stores worldwide, in premium locations.

(As an aside, retail doesn’t just help boost Apple’s sales – it boosts margins too. According to ifoAppleStore, Apple’s overall sales in 2008 came to $32.47 billion, with $4.84 billion profits – a margin of about 15%. For the stores, though, revenues came to $6.31 billion and profits to $1.33 billion – a margin of 22%. In other words, retail customers are not just buying lots of stuff – they’re buying stuff with higher margins.)

The limits to growth

But growth is growth, right?

“Things have not always been like this. NPD conducted the same survey at the beginning of 2008, and at that point Apple’s share of the $1,000+ retail computer market was only 66 percent. Repeat: Apple’s share of this segment has grown from 66 to 91 percent in a year and a half.”

Now I don’t have the numbers here. But fundamentally, there’s two ways to achieve share growth: Sell more yourself, or your competitors sell less. A startling change in share like that is usually a combination of both – it’s incredibly rare for one company to outpace everyone else to that degree while everyone is growing sales.

So what the NPD figures reveal – if anything – is that Windows PC buyers are more price sensitive than Apple buyers, and that they are either deferring new purchases or buying cheaper computers. The overall market for $1,000+ computers isn’t growing much, but Apple is taking a bigger proportion of the pie.

But the key thing is this: the price a PC is sold at retail doesn’t actually matter much to Microsoft. The pricing of Windows is somewhat opaque (hence the long drawn out anti-trust cases on both sides of the pond), but the cost to someone like Dell is effectively flat, whether they sell a PC for $500 or $1,500. Only if they upsell between versions of Windows does Microsoft get more money, so if a PC comes with Vista Business it will get more than Home Basic.

John labours this point later:

“The evidence is staring Microsoft’s leadership in the face that they have lost the most lucrative segment of the market, but, judged by their actions and public remarks, they seem to think it’s all a big joke. They should be sweating this but they’re laughing it off.”

He’s forgetting that this “most lucrative” part of the market isn’t the most lucrative part for Microsoft – and it never has been. For Microsoft, the difference in margin between Dell selling a $500 PC and a $1500 one is probably in the order of $20. Is it any wonder they aren’t losing sleep over it?

In other words, for Microsoft it’s much better if lots of people buy cheap PCs than fewer people buy expensive ones. For the hardware makers, that’s not necessarily true – but for them, Windows is the only game in town anyway.

From these tenuous foundations, John ends up here:

“Today, though, Microsoft is increasingly left only with customers whose priority is price.”

This is a great slogan, but it’s also a big leap – and it’s really a non sequitur. At best, John has shown that during a recession some customers are more price sensitive than others, and the price sensitive ones tend not to buy Macs (they aren’t buying Linux either, but that’s beside the point).

Vista vs 7 vs OS X

Of course, the biggest impact on Microsoft’s revenue has been the complete failure of Windows Vista as an upgrade for business, and that’s something that Windows 7 goes a long way towards fixing. John is dismissive:

“But no one seems to be arguing that Windows 7 is something that will tempt Mac users to switch, or to tempt even recent Mac converts to switchback. It doesn’t even seem to be in the realm of debate. But if Windows 7 is actually any good, why wouldn’t it tempt at least some segment of Mac users to switch? Windows 95, 98, and XP did.”

Harry McCracken has the best response:

“History suggests that people don’t like to switch operating systems and the most striking significant shifts in operating-system market share have happened when one OS has been on alarmingly shaky ground. Back when the exodus from Macs to Windows 95 and Windows 98 that Gruber refers to happened, Apple’s OS was floundering and it wasn’t clear that the company was going to survive. And Apple has made major inroads over the past couple of years in part because Windows Vista was such a mediocrity.” [My emphasis]

Windows 7 isn’t a mediocrity. It’s good. It’s not going to get Mac users to switch, but it is going to stop a lot of Windows users from switching. And, more importantly from Microsoft’s perspective, something that will persuade the legions of their most important customers – IT managers – that it’s time to move on from Windows XP.

John continues:

“Vista was a disaster for Microsoft. Windows 7 is, supposedly, the light at the end of the tunnel. But the best consensus about Windows 7 is only that it’s not going to be a complete and total clusterfuck like Vista.”

This might be the consensus amongst Mac users, but it’s a long way from the consensus amongst everyone else. When Walt Mossberg, who’s recommended Macs on many occasions, notes that 7 “leaves Vista in the dust” you know it’s more than just a minor update. As Walt says:

“It’s also a serious competitor, in features and ease of use, for Apple’s current Leopard operating system.”

Of course, Snow Leopard will be out in September and offers a lot of extremely exciting technology (enough to tempt me into buying a new Mac – but that’s another story). But the fact that Microsoft has moved from the disaster area that is Vista to a serious competitor to Leopard is a long way from 7 just being “not a clusterfuck”.

I could go on. There’s plenty more “does not compute” in John’s article. I can see exactly why he’s ended up with the points he’s made, and it’s simply that he’s looking at Microsoft through the prism of being a Mac buyer, without considering the wider context of the industry.

It’s understandable. But it also means he’s over-egged the pudding.

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  • Gareth

    You make a great point about the value / cost of a PC and the value to Microsoft. That is certainly true.

    It's also true that Microsoft aren't going anywhere soon. They are a huge company.

    But, think about things outside of the desktop / laptop for a minute.

    The Microsoft media strategy (PlaysForSure, Zune) has been a complete disaster.

    The Microsoft mobile strategy (Win CE – Wince!!) has been a complete disaster. Even HTC – who sell something like 80% of Wince smartphones are now making Android handsets. MS are no where near the iPhone at the moment. Neither is anyone else, though, not even Nokia. Apple have been in the market with 1 handset for 2 years. On my train to work today just in my section of the carriage (12 seats) I counted 5 iPhones.

    I don't have the figures, but has the XBOX ever made any money for Microsoft?

    Apple have raked in billions of dollars from these products over the last 8 years, and it is showing no real signs of slowing down (even though the iPhone is cannibalising some iPod sales).

    Microsoft simply struggle to innovate and deliver, even in their core markets. There is simply no reason for the majority of people to upgrade from Windows XP to Vista, or Windows 7. Sure, they may get it when they get a new PC or laptop. For sure. But, a lot of companies are asking themselves what they are going to gain from the new software and, in many cases, the new hardware needed to run it.

    Microsoft are work when they own the market. And they work simply because they own the market. But, as IBM, and General Motors, and Ford, and GE will tell you: markets change.

  • http://www.technovia.co.uk ianbetteridge

    Yes, and you'll note that the stuff that I picked John up on is all about the Mac and Windows. When it comes to mobile, Microsoft is in a bad place.

    But you're wrong about there not being reasons to move from XP to 7. Win7 is about a country mile easier to use, and more importantly more secure (much, much more secure). In my scientific sample of one (me) it also performs *better* than XP on underpowered hardware.

    (Of course, Microsoft is apparently making it harder than it should be to move from XP to 7. To which I say, “doh!”)

  • Gareth

    Without wanting to sound glib, it seems to me that the two things that Windows users care least about are ease of use and security.

    I think ease of use is entirely personal and subjective. If you find Windows XP easy to use – or easy enough to use – then what massive benefit is there from changing that? You're asking people to re-learn how they work day-to-day, and there is always a lot of resistance about that. So, yes, it may be easier to use. When you've learned how to use it.

    Most of my Windows using friends still use very old – almost prehistoric – methods of managing media and files. I seriously doubt any of them sync their phones to the PCs. Most of them don't even use a media manager, such as iTunes or WMP. They just have folders full of MP3s. Anecdotal, of course, but true none the less.

    As for security, is that still such an issue with the latest XP / Vista service packs and a decent software package? Windows fanbois would have you believe it was fine.

    Microsoft have lost focus. They are trying to do everything. What they should do is focus more on their core markets, and make their products and user experiences there as good as they possibly can be. The whole Windows product range is far too confusing.

  • http://www.technovia.co.uk ianbetteridge

    Nothing wrong with sounding glib – I think I've made a career out of it :)

    Having said that, I have to disagree. When I talk about ease of use, I'm not simply talking about what you're traditionally think of – an interface which is intuitive, for example. Instead, you have to add in factors like the (magnificent) integration of functional applications for things like managing photos, video, and music. iLife isn't just a bolted-on suite, it's part of the core of the OS.

    (As an aside, ironically this is one of Microsoft's weaknesses not because they don't know how important it is, but because they're scared of running into yet-more anti-trust troubles for bundling software.)

    As for security, the issue isn't really “can you get a virus?” as such – install an AV package on anything and you should be free of almost every nasty – but how vulnerable the OS is to new exploits. Thanks to the huge efforts that MS poured into stuff like Secure Development Lifecycle, serious security people (ie not just me) have argued that Win7 is the most secure consumer OS ever made. It's going to be much, much harder to find holes in it and exploit them.

    (As another aside, I'm always slightly reluctant to talk about the comparative security of Macs and Windows these days because the position of the most vociferous Mac users is both out of date and entrenched. It's like arguing into a hairdryer, and it's not fun for anyone.)

    As for MS losing focus… my first thought was “it was ever thus.”. The were basically driven by Gates' vision of “a computer on every desk, running Microsoft software” and no new coherent vision has come forth to replace it. It's still a valid core idea of what Microsoft aims to achieve, but it's a less exciting one that it once was, and it's also a bit… passe?

  • Kenton

    Google isn’t a tech company?


  • Jason

    Gruber’s right, Microsoft is in a bad place and doesn’t realise it – yet.

    MS and its apologists could get away with hiding behind the Global Financial Crisis if Apple – despite selling a more expensive product – hadn’t improved its position. If your main selling point in a recession is “we’re value for money” and people are still going out and buying your competitor’s more expensive product, you’re doing something wrong.

    Which is the problem with the “Laptop Hunter” ads: they promote the view that Windows is bought by low-rent trailer trash while Macs are something to aspire to when you’ve got a little bit of cash. MS is helping Apple entrench the Mac as a status symbol. Who signed off on that?!

    But MS’s tried and tested business model – wait till people buy a new computer and sell a copy of Windows through the hardware manufacturers – will see them through when it comes to Windows 7. That’s the advantage of having a locked-in monopoly market share; you can feed people shit and they still have to eat it, even if they skip a meal or two. Steve Ballmer and the cool aid-drinking MS press corps will smile sagely and say: “See, W7 is a success”.

    But they’re blind to the realities of the market, which is changing. As you say, MS is in a very bad place in the mobile market. They’re in new territory where they can’t rely on a locked-in monopoly user base being force-fed whatever MS chooses to feed them. They’re having to compete and they’re showing they really aren’t good at that.

    Luckily for MS, the desktop monopoly will keep it in cash for a long time to come, but as Gruber says, markets change. Make the OS less relevant – which in many ways it already is – and you take away MS’s only reason for existence. Even if MS could see it was vulnerable to a shifting market, it just doesn’t know how to react as its only successful business model has been the locked-in monopoly market share.

    In so many ways its story reminds me of GM. I don’t think it will go the same way (it’s easier to change cars than operating systems), but I wouldn’t bet money that Microsoft is too big to fail.

  • http://loewald.com/blog/ Tonio Loewald

    I think you’re overusing (and mispelling) non-sequitur 😉

    The problem for Microsoft is that they’re increasingly dependent on a market for $400 widgets which used to be a market for $1200 widgets, and their money comes from selling a licensed component of those widgets (Windows) and addons to those widgets (Windows). Am I going to pay $100 for Windows to be tacked onto a $400 widget? Am I going to pay $300 for Office to be installed on that $400 widget.

    People are going to start thinking — HEY I own a copy of Windows, why can’t I install it on a $300 widget rather than buy a new copy?

    And manufacturers have already negotiated lower licensing costs for Windows on the cheaper widgets — one of the results in Windows 7 for Netbooks only lets you run three “apps” at a time — where the definition of app is highly variable.

    A lot of Microsoft’s strategy for making money off Windows 7 is more insane SKU shenanigans, except this time they think they’ve got it right. Time will tell — but I suspect that making customers more aware of the fact that Windows 7 Basic is intentionally crippled is NOT a long-term winning strategy.

    Hi, we’re Apple and we sell you ONE version of our OS — the GOOD one.

  • http://www.zeno.ro Zeno Popovici

    Boy, I do hope this post is not going to end up into next year’s Gruber quoted “failed predictions” area :)

  • Annoying grammar guy

    It is “non sequitur“, not “non-sequiter”.

    At any rate, what’s in it for IT directors to upgrade from XP? What will they really gain other than the headache of upgrading? They’ll get fewer annoyances and unhappy people than they would’ve with Vista, but what else?

    And as far as those direct order PCs go, if I’m not too much mistaken, they’ve been charging OEMs for Vista licenses on all of them, and just giving some of them additional XP downgrade licenses alongside. So if I’m not wrong about that, I doubt they’ve seen any Vista-related drop in revenue from OEMs.

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  • http://en-gb.facebook.com/RattyUK John Molloy

    I think that the NetBook thing has really messed up Microsoft's financial planning. The did whatever needed to be done to take back that market from Linux. Which roughly translated means they took a huge hit on margins for that market. With this Dick Cheney “scattergun” approach they also took out the bigger Windows market by people buying netbooks instead of “real computers”.

    They say that W7 will fix this and it looks like they have decided to clobber W7 at the low end. Don't know how it will pan out but it does appear someone is making decisions at Microsoft and not actually thinking them through.

    Either way, with Ballmer in charge, they seem a bit headless.

  • jhn

    When you install an application on Win7 it still barfs files hither and yon across your hard drive, instead of in a nice neat bundle in OS X (with maybe one or two “application support” data files and preference files elsewhere). We need a Windows equivalent of GoboLinux.

    At least they’re starting to drop uselessly perpetual backwards compatability, which is a plus, and the prereleases *are* pleasant to use. It’s just that Windows overall is still a pointlessly complex and undesigned rube golberg machine. (OS X could stand to lose some weight, too. Who the hell uses “Services”? )

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  • Ian Betteridge

    First, thanks to all those who corrected the spelling 😉 And thank you all for coming and commenting!

    Marcos: Yes, I think that’s one of John’s points. One of the general problems I have with that post, though, is that he conflated an awful lot of points – some good, some not to good – in order to get his point across. It’s a big confusing, once you read it closely.

    Kenton: Nope, it’s really an ad sales company. The tech is secondary – and, with the notable exception of search (which is the framework they use to sell ads) largely loss-making. See posts here passim.

    Jason: Good points, all. I think the criteria that MS will probably use for Win7’s success is “not as bad as Windows” which is, as John says in a later post, a low bar to set. But it’s also a start.

    Zeno: John’s not that snarky – and no one’s paying me to be an analyst :)

    AGN: The drop in revenue over the past quarter will be from IT guys not buying any new computers at all. Extending the lifespan before you write it off from 3 years to 4 looks like a nice deal in the current economy.

    JHN: You’re right. Backwards compatibility is millstone around MS’s neck, and sooner or later they need to drop it. Hopefully sooner.

  • http://www.technovia.co.uk ianbetteridge

    The netbook effect on Microsoft is interesting, because it's basically meant that they couldn't kill WinXP which (for obvious reasons) they'd like to knife. Vista runs like a dog on netbooks, so they had to keep XP around as a viable option.

    7, though, could be a game-changer – it runs really nicely on netbooks. BUT… they could easily mess up on the pricing. It's a real problem for them, and one which they haven't sorted out yet.

  • dave

    Don’t forget, Ballmer said today that he’s planning on raising the price for Win7 licenses next year, putting more pressure on manufacturers to either use even cheaper components/construction or kill their margin to maintain price levels.

  • David

    “Windows 7 isn’t a mediocrity. It’s good”.

    The huge question is, is it good enough? Given that there is no direct upgrade from XP, requiring either all new computers, or backup/reimage/clean install/manual restore – X 10/100/1000s in the case of businesses…

    exactly what is the upside? It better be a darn huge one. And from everything I’ve heard, it’s not.

    This fantasy that businesses are going to waste a bajillion man-hours upgrading from XP to 7, or spend a bajillion dollars on new computers- is just that, it’s Steve Ballmer’s wet dream, nothing more.

  • Avro

    Funny some of the Windows geeks have told me how great Windows 7 is and the next thing I know they are buying a MacBook or MacBook Pro, because they have got fed up with the Microsoft way of doing things and Windows.

    Will 7 stop the migration to OS X? No Does Microsoft have to fear Apple on the Desktop? No, Linux is the threat. :-0

  • Marcos

    Mmm, I think the best point of Gruber's post is that MS doesn't seem to realize when they're platform is way behind someone else. Windows Mobile is an excellent example. And their response to OS X is to point out how much cheaper Windows PCs are. Perhaps if Windows 7 is as big an improvement as you say, than it's a step in the right direction for MS improving their products.

    But, fundamentally, Apple is a product-driven company – all their executives say in every call that they're focused on making the “best” products, and not on anything else. What's MS's focus? It doesn't seem like it's on doing anything “the best.”

  • John

    He said long slow decline not doom. Microsoft has always made mediocre products but has succeeded by other factors, many of them proven illegal.

    Very few corporate IT departments have any interest in “upgrading” to 7. this is well known. it would require replacing a lot of hardware in the middle of a recession, retraining users, and new processes and tools. Anyone who has ever worked in corporate IT knows the amount of cost, time, and disruption this would engender.

    Microsoft has a closed environment in the application and server world that is growing increasingly open. Good luck with that! I’ve been buying and recommending very large server purchases for a lot of years and everything of any size has been on Red Hat Linux. Virtualization has marginalized Microsoft even more as their server OS’s STILL do not scale well to large amounts of memory and procs or work well with other products.

    “the price a PC is sold at retail doesn’t actually matter much to Microsoft.”
    Really? Because they make a big deal about it in their moronic ads. They are obviously going for quantity over quality.
    “In other words, for Microsoft it’s much better if lots of people buy cheap PCs than fewer people buy expensive ones.”
    You just contradicted your earlier statement.

    Windows 7 is a slightly better vista and that is all. Yes i have used the beat extensively. It does nothing to prevent “windows rot” requiring reinstalls and causing other registry related issues, it does little to nothing about MS’ security problems. The only reason people are swooning over it is because Vista is so bad.

    Micrsoft has its oars in way too many boats and shows no signs of knowing this. Ballmer was shocked, shocked! that the financial community rewarded the Bing/Yahoo deal with lower stock prices. That is how out of touch he is with reality. That guy really needs to go…

    Google isn’t a tech company? What do you think makes their ad revenue possible?

    You did some very selective quoting of what Mossberg has said about Windows 7.

    Long story short, unless Microsoft gets some real leadership, focuses, drops backwards compatibility at the expense of so much else, and dependence on tying the customer into all Microsoft then yes they are in trouble. Not immediately but in the long run.

  • James

    “At any rate, what’s in it for IT directors to upgrade from XP?”

    Improvements. The deployment tools developed for Vista (and continued in 7) are more efficient and easier to manage – sysprep being a good example.

    Likewise, some desktop management vendors are moving away from supporting XP with their latest offerings, Novell for instance.

    Enterprise and large networks are an interesting subject when it comes to Apple. The tools that they do have are absolutely brilliant; however, there aren’t enough of them, and they still don’t have broad vendor support. Linux is even worse (desktop wise).

    There’s also the argument – untouched in both Gruber’s and this piece – that some Apple kit is clearly overpriced. That people insist on buying it doesn’t fundamentally make it better.

  • John

    BTW you can download the “vaporware” Google Chrome OS here;

  • Dan Downs

    I think the main problem is that the PC makers race to the bottom has caught up with Microsoft. In trying to get to sub-$400 devices they can’t pack enough power in them to run vista, plus the reduced rates and revenue MS is getting for these only lowers profits and raises costs. One point I haven’t seen anyone bring up is the “cost” of having a customer: support calls, warranties, battery recalls, marketing, manuals and other printed crap, all these side “things” that have to be factored into the business expenses. Rough example, if a customer costs you $30 over the life of the product why are you trying to get margins of $35? Going the volume route just isn’t a good option if it means increased call centers, larger corporate crap (hello left hand I’m the right hand, have we met?), lower product quality and increased volume will practically force you to need the other cost raising services. This argument works well for why Apple should stay were it is and not worry about low margin products.

    Now for Microsoft though, relying on all these companies that are in the process of hanging themselves, not a great place to be. The struggling companies will either get bought out or start seeking other cheaper services which just hurts Microsoft. What if they just starting pre-installing OpenOffice to help show useful functionality on that $400 netbook. When margins are that tight what’s better than free if it’ll keep the out the door price low enough to actually sell the thing.

    Now Microsoft has been golden in being high volume and good margins, but just because Windows 7 will help get better margins doesn’t mean people are going to keep buying at the same rate or higher which they would need to get their profits back up.

  • John Parel

    I think you’re being overly kind to Gruber. He spends most of his time deriding or savaging who exhibits the temerity to question Apple products or policies. His output is strictly a one-way street, with no right of reply on his site. He rarely feels a need to defend a point, but when compelled he quickly adopts the “we’re all friends here” routine, in stark contrast to the antagonism of the original post.

    Do not be surprised if your post is referenced on Daring Fireball very soon, possibly in fawning terms, where you will be noted as a “fellow journalist” or “insightful commentator”.

    I’m a long-term Mac OS X developer, and have no love for Microsoft. But, it needs to be said that Apple is now making many of the mistakes that Microsoft have made. We need a honest, open questioning of both companies, not fanboy-esque posturing.

    One final thing: thank you for having the courage to accept other people’s points of view on your blog. Gruber could learn from you.

  • SteelBlades

    I don’t think backwards compatibility is as much a millstone around MS’s neck as some might think. Along with the wide range of software available and broad hardware support, backwards compatibility is one of the three legs Microsoft stands on.

    With backwards compatibility lost, customers will be faced with staying with XP long-term or, if possible, upgrading their applications (not all apps have been or will be upgraded for Win 6.x compatibility). In this situation, Apple has a window of opportunity. If Windows customers must upgrade from XP, why not choose Mac OS X? As long as a user’s budget allows it, the absence of malware and other attractions can entice a user away from Windows.

    There’s little doubt backwards compatibility is holding technological advancement in Windows back. But on the flip side of the same coin, it may be what’s keeping many customers loyal.

  • Dan Thies

    While I have high hopes for Windows 7 to make my limited Windows use less painful, the upgrade maze (6 versions-seriously??) is not going to be a happy experience for Microsoft’s customers. Apple still “gets” something that Microsoft doesn’t.

  • Vanni

    “Ballmer laughed off Apple as a minuscule player in the computing market”
    He also laughed at th e Iphoen and Said apple would fail in that marjket:

    Ballmer poo-poohed the iPod, and called the Zune an iPod killer.

    “Ballmer mocked some of Google’s efforts to develop software to run on PCs.”

    I would contend that MOST of Google’s efforts are paying big dividends and it enjoys brand loyalty that MS can only dream of. “Some” maybe duds but MOST are winners.

    And when you total up Ballmer’s statements about its competitors and their products i can only come to the conclusion that MS are defensive and they sound downright worried. And so they should be. The chink in their armour has become visible. I think Gruber is correct in characterizing MS as being in a slow decline. This does not mean that they will fail, but as IBM had to move to different market, so too will MS.

    They are increasingly losing mind-share in terms of computing, the internet, and they are now toast in mobile market.

  • Vanni

    “He also laughed at the iPhone and said apple would fail in that market”

    ps this is funny!

  • John Kennedy

    The NPD numbers were very useful at the time they were published. But now we have better data; both Apple and Microsoft (as well as others) have released actual numbers. For example Chris Lidell told us in the Microsoft call that PC unit sales in the “non-networked” market segment were down 16+ percent in the quarter. This segment accounts for just about all Macs sold, yet Mac unit sales were up 4 percent. We can infer then that sales of Windows equipped PCs in the segment were down more that 16%, since the overall number includes Macs. So there is difference in performance of well over 20% in Mac’s favor.

    But this is not new. This is not the first quarter we have seen this growth disparity between Windows PCs and Macs. It has been going on for many quarters going back to when Mac switched to Intel and introduced Tiger.

    This history means the non-sequitur is in suggesting that the cause of the disparity in the June quarter is that low-end buyers are cutting back in the recession more than the upper-end buyer. Moreover, there is much evidence in many markets throughout the economy that people are reacting to the recession by moving downscale. This should work in Windows favor.

    Making these comparisons even more remarkable is that all these measurements are of units. Thus a sale of a $400 netbook counts as much as a $1,500 MacBook Pro. And it is well-documented that the netbook segment has been growing fastest. Yet Apple has no entry in this market what-so-ever. If one wanted to really compare how Apple is doing against its competition, one would be measuring revenue or gross profit instead of units. The disparity would then mushroom.

    One final point: Apple makes about $400 gross margin on a $1,500 Mac. If they were to cut their profit in half (an enormous cut), then the price of the Mac would still be $1,300. So when one argues that Apple’s prices are too high and unwarranted, one is really arguing that Apple’s costs ($1,100 in this example) are too high. Does anyone seriously argue that Apple is not good at cost engineering, supply chain management, and purchasing. I don’t think so. So enough of that crap, please. Apple’s gross profits are not unreasonably high at 28% (Mac only), and customers the world over are voting with their wallets that the value in the Mac justifies its price.

  • Wes

    John Parel on John Gruber:

    I think you’re being overly kind to Gruber. He spends most of his time deriding or savaging who exhibits the temerity to question Apple products or policies. His output is strictly a one-way street, with no right of reply on his site. He rarely feels a need to defend a point, but when compelled he quickly adopts the “we’re all friends here” routine, in stark contrast to the antagonism of the original post.

    While I disagree with Gruber on his piece, and he does frequently snark without defending a point and can become overly fanboyish at times, he is critical of Apple over lots of things like its fiasco of an App Store (where rules are improvised almost daily).

  • JulesLt

    I personally can’t wait for work to upgrade to Windows 7, and I’m glad Apple stole one of the better ideas (the Appspose on clicking the dock/taskbar) for Snow Leopard.

    I’m sticking with Apple at home for the foreseeable future (because it’s software, not the OS that counts, and I think it will take years for Windows developers to catch up with Windows 7 itself) but I like what I’ve seen of Win 7.

    Dare I say that running it on a Macbook there is less mysterious ‘spinning beachball’ style slowdowns than Leopard.

  • Steve

    Ian, I can’t help but find this post a bit silly. On one hand, you deride Gruber’s piece, but then you fail to put up a compelling counter argument of your own. You claim Windows 7 isn’t mediocrity then your follow up description of Windows 7 describes mediocrity. Will Windows 7 attract significant numbers of users back to the Windows platform? Just being a competitor to a 2-3 year old competitor’s product isn’t saying much.

    You also go on about telling us how Windows 7 will attract IT Managers. As an IT Manager, I can tell you that Windows 7 is more palatable than Vista, but given the choice, most would stick with XP if it were an option. I work for a large corporation that has avoided Vista for obvious reasons, but we are/were in the process of making the necessary preparations to switch to Vista if we had to. I can assure you that this decision to move off of XP for most companies will have more to do with Microsoft forcing the issue (due to licensing of operating systems with new hardware) than it has to do with any merits of Windows 7 itself. For most companies, the bottom line is that XP works well enough. While there are nice features in Windows 7, they aren’t compelling enough to warrant the cost of an upgrade in and of themselves. Further, Vista/Windows 7 breaks compatibility with many of our custom built and third party software. Moving to Windows 7 means upgrading lots of other middleware and in some cases, switching to entirely different products.

  • Ian Betteridge

    HI Steve,

    I think you’re missing the point a little. Windows has never had to be exceptional to be a success – witness Windows 95, which was barely any more usable than OS 7, and which ended up being huge for MS.

    And it doesn’t have to attract switchers back: remember that in the bigger picture, the actual number of switchers from Windows to Mac, while not quite the “rounding error” that Ballmer makes out, is pretty small. Worldwide and across all channels, you’re talking about a couple of percentage points.

    What it does do is be a (much) better Windows. And that will be enough to stop the migration away from Windows becoming any more significant.

  • Adam

    “Dell, which sells a quarter of all the computers sold in the US, doesn’t show up in these figures because it doesn’t have a significant retail presence.”

    Hi, I can be argumentative sod too and I’d like to draw your attention on something. When was the last time you read an article about Dell? You should read this Business Week news story from May 2008 for instance. Only 18% of Dell’s computer sales were to consumers but Dell was already showing up in NPD’s figures, because their products were sold in 13,000 stores including Wall-Mart, Best Buy, Costco, etc. According to NPD Group, Dell’s retail PC share in the U.S. was 8.1% in April 2008, trailing H-P, Apple, Acer, and Toshiba.


    The company is also blogging about its growing retail presence. Its consumer products are now available in more than 30,000 stores worldwide. I think it’s fair to say that Dell’s retail presence is rather significant. :-)


  • Ian Betteridge