Don Dodge on The Next Big Thing

Three reasons Microsoft will not buy Nokia at any price

Nokia (NOK) stock price is dropping to historic lows with a current market cap of just $9.3 Billion. Nokia has revenues of over $38B, $6B in cash, 30,000 patents, and a great brand. Investors and sharks are circling. Microsoft (MSFT) isn't one of them. Why not? Three reasons; they don't want to, they don't need to, the FTC & EU regulators wouldn't let them...even if they wanted to. Techmeme thinks Microsoft might be getting into the hardware business, but not phones. Lets explore these three points.

They don't want to - Microsoft has strong DNA as a partner driven company. The success of Windows was driven by thousands of hardware manufacturers and tens of thousands of software companies supporting Windows in their products. For more than 30 years this has been the business model. They view Windows Phone 7 just like Windows on the PC...an operating system platform for any hardware device. They just work with manufacturers and the money pours in. They don't want to mess with the model.

It has been a great model, but it doesn't always work. Microsoft has always been the opposite of Apple (APPL). Microsoft makes software available to all manufacturers, while Apple is a closed system. For most of the past 30 years Microsoft had the better model. Not anymore. Apple has proven that a beautifully integrated (closed) system can be very attractive. Apple has DNA too. Apple products have always been integrated hardware and software. It has worked well for the Mac, iPod, iPhone, and iPad. Hmmm...maybe Apple will buy Nokia. Makes more sense than Microsoft, but I digress.

Microsoft made one exception to the model I can think of, the Xbox. And that was only because they couldn't convince the game box makers to play nice with them, and because they didn't have any partners in this space. Microsoft spent billions developing the Xbox hardware platform just so they could sell their game software. Eventually, the bet paid off. And, in the future it could be a huge home computing platform if they could shake their legacy DNA. Not likely. Microsoft might enter the Tablet space. This would mark a change in strategy, and create huge channel conflict with partners.

Smartphones are a huge market, and the future of personal computing. Microsoft is trying to use their Windows PC distribution model for Smartphones. It isn't working. Manufacturers who once used Windows Mobile have grown tired of the slow pace of innovation at Microsoft and high OEM prices. Many are now using Android. Microsoft responded by making a deal with Nokia, paying them billions of dollars for "marketing" and engineering transition costs. To date that isn't working very well either.

Microsoft doesn't need to buy Nokia - Microsoft already gets everything they want from Nokia without buying them. Microsoft wanted distribution from a big brand Smartphone manufacturer. The idea was that other manufacturers would follow after Nokia blazed the trail with Windows Phone 7 and grabbed market share. Nokia was one of the few big manufacturers that hadn't committed to another OS. It was a reasonable strategy for both companies. It hasn't worked out yet, but it still might. The Xbox strategy didn't work in the first year either. These things take years and billions of dollars to execute. Microsoft has plenty of time and money. Nokia doesn't.

The FTC and EU wouldn't let them - Almost any big acquisition by Microsoft, or any of the big players, will attract an FTC, EU, and even China review. We live in a world where government regulators decide, not the two willing companies. That is a subject for another day, but suffice it to say that government regulators would probably not allow Microsoft to acquire Nokia based on some theory of "competition" being lessened and consumers being harmed.

Nokia could still turn things around. Microsoft could pump in more money to help them out. Nokia can sell off assets and patents for billions of dollars. Nokia already announced they will lay off 10,000 employees as part of a restructuring. It will get worse before it gets better. But, the Nokia brand and asset is too strong to just totally disappear. Nokia can emerge from the restructuring as a smaller stronger company, or end up being acquired by a bigger stronger company...but not likely Microsoft.

Disclosure - I worked for Microsoft for 5 years. I don't speak for them. I now work for another large tech company. I don't speak for them either. These are my own personal uninformed thoughts...and probably wrong.

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From MSFT evangelist to Mac enthusiast - the other side of the road

For five years I was a Microsoft evangelist to the startup and venture capital community. That ended a couple months ago. I am now a Developer Advocate at Google and I love it. After years of defending Microsoft against the Apple fanatics I decided to go to the other side of the road to see for myself. Microsoft frowns on employees using competitive products, and there isn't much time or budget to do it anyway. So, the move from Microsoft gave me the opportunity to try lots of new things. The move from Microsoft was complete. From Windows to Mac, from Outlook to Gmail, from Explorer to Google Chrome browser, from Office to Google Apps, from Windows Mobile phone to Android, from Zune to iPod. But this post is all about the move to Mac.

Design matters – The most obvious distinction between Microsoft and Apple is design. Apple is quite simply the best hardware / software design company in the world. This video "Microsoft iPod" demonstrates in a very funny way the real differences in design attitude. While funny, it is painfully true. My MacBook is sleek, elegant, fast, and efficient. The rounded edges are comfortable and smooth aluminum finish is beautiful. My Windows machine was a Lenovo X301 with Windows Vista. It was light and small for travel, but I don’t think anyone would classify it as beautiful. You see the design ethic in everything Apple does. The Mac, iPod, iTouch, iPhone and iPad are just beautiful, elegant, and imaginative designs that provide a delightful user experience. Design is probably the reason that high end buyers choose Mac.

End to end experience – One of the major advantages Apple has is controlling the end to end user experience. This means the hardware works perfectly with the software. Networks, printers, and other peripheral devices work out of the box without lots of setup, configuration, and preferences. For years this has been a major advantage for Apple. The downside was that Apple products cost more and you could only get software and peripheral devices from limited sources. Microsoft, in contrast, was the Swiss Army Knife of the tech world. It could do anything with any vendor of any hardware, software, of game maker. All these choices from different vendors caused lots of variation in design, installation, OS requirements, and overall user experience. The Apple experience was just easier and more elegant.

Functional differences – My guess is that in the early days of the PC vs. Mac wars there were big differences in functionality, software availability, and price. There still are some differences but not as vast as before. The first things I noticed about my Mac were; the touchpad, keyboard (backlit), the screen, battery life, start-up / shut down, power cord, and appearance.

The Mac touchpad is great. The best feature is the two finger page scrolling. Dragging two fingers across the touchpad makes browsing web pages sooo much easier. One of my favorite Windows features was “right click”. I used it all the time for everything. Finally someone tipped me off that the Mac does many of the same “right click” function by holding two fingers on the touchpad and clicking. Eureka!! I’m sure there are lots of other tricks and controls I need to learn, but just mastering the touchpad made the experience much more enjoyable.

The first time I used the MacBook at night I was delighted to discover the backlit keyboard. I had no idea it was there. I guess it comes on when it detects low light conditions. The light shines through all the keys so you can type in the dark. OK, you can laugh at my backward ways, but I never had a PC with that feature. Working in low light or dark conditions is now simple. I love it.

The screen on the MacBook is gorgeous. Bright and clear. Smooth edges. Just perfect. You can get beautiful screens on a PC too, but you usually have to upgrade significantly and pay extra.

The battery life is significantly better on the Mac. The Mac also starts up and shuts down faster than the PC. My guess is that because Apple designed the hardware and software they are better able to control all the variables that effect battery life, startup and shut down, and make it much more efficient.  The magnetic power cord attachment is pretty cool too. It only takes one time where someone trips on your power cord and sends your PC crashing to the floor to appreciate this feature.

Do operating systems matter anymore? You may have noticed that most of the differences I mentioned are hardware design oriented. But what about the differences in the operating systems? Perhaps the best attribute of an operating system is that it operates silently in the background organizing everything automatically without end user involvement. Ten or twenty years ago users had to deal with the operating system to do anything on a PC. Today most people spend their time in the browser. From my perspective the underlying OS doesn’t matter much. All my applications run in the browser. Web browsing, email, documents, spreadsheets, music, photos,…everything is in the browser.

Old habits die hard – We humans are creatures of habit. We get comfortable doing something and resist change. Leaving Microsoft and joining Google gave me the perfect opportunity to change everything. From a functional point of view you can do anything on a Mac that you can do on a PC…and vice versa. There are differences in approach or style, but you can get the job done with either Mac or PC. It is the edge cases that are not intuitively obvious. When things break or don’t work as expected there are very specific ways to handle it on a PC or Mac. Some would argue it is more intuitive on a Mac. Perhaps if I didn’t have 20 years of experience on a PC I would agree. My experience is that doing the routine and obvious things on a Mac are fast and easy. Trying to fix unexpected behavior on a Mac is equally idiosyncratic, and requires some experience.

My mother who doesn’t use computers, and doesn’t really understand them, asked me how the transition was going. I said “Imagine you learned to drive in the USA and had been driving a Ford Mustang for 20 years. Now imagine you moved to the United Kingdom and started driving a Jaguar on the left side of the road. The Jaguar is an elegant car, and wonderful to drive, but it takes a while to get used to the other side of the road.

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The Crunchies photos and videos

The Crunchies Award show was produced by TechCrunch, GigaOm, and VentureBeat. It is always one of the best parties of the year. This year was no exception.

The hit of the show was another clever song by the Richter Scales. Last year's prescient instant classic was "Here Comes Another Bubble". This year they came back with a hilarious song "RIP Good Times...Hello Great Times".

The song chronicles a startup CEO rallying his troops through the recession, turning down a $500M buyout offer, focusing on the positives (pounds of brains, and months of cash), and adding porn to juice up their product offering.

Rather than expound on all the highlights, let me just share some photos from the event.

Ray Ozzie (Microsoft - LiveMesh) accepting the Crunchie for Best Technology Innovation/Achievement for 2008, Steve Gilmor was the presenter.

Dan'l Lewin (Microsoft) presenting Best Startup, won by FriendFeed.

David Treadwell, Ray Ozzie, Om Malik interview

Jason Calacanis adding a touch of humor to the night. (Photo by Chad Scott)

Pictured below;  Ray Ozzie, MC Hammer, and Geoffrey Arone (DanceJam)

The TechMeme crew. Megan McCarthy and Gabe Rivera

Silicon Valley Angel investors; Jeff Clavier (SoftTechVC), Paul Graham (Ycombinator), and Dave McClure (500Hats).

Mark Zuckerberg (Facebook) and Don Dodge (Microsoft)

Microsoft Surface Computer attracted a huge crowd

Midori Lawler (Microsoft) and MC Hammer at the after party.

Microsoft reports strong quarter in turbulent times

Microsoft  (MSFT) announced revenue of $15B for the quarter ended Sept. 30, a 9% increase over the same period last year. Operating income was $6B, net income $4.4B and earnings per share was $0.48 for the quarter.

This was a strong performance in a difficult economic environment. Of course Wall Street immediately looks beyond this to the "guidance" for the next quarter and full year. The guidance was slightly lower than previously forecast, but not much. The stock market reacted favorably moving up in after hours trading.

Other highlights for the quarter;

• Microsoft ended the quarter with $20.7 Billion in cash.
• Microsoft (Office) profit of $3.3 billion on revenue of $4.95 billion.
• Client (Vista) profit of $3.26 Billion on $4.22 billion in revenue.
• Server & Tools - profit of $1.15 billion on $3.4 billion in revenue.

Microsoft PDC - Windows 7, Cloud Computing, Live Mesh, and more

Microsoft PDC2008 (Professional Developers Conference) will be in Los Angeles, October 27 - 30. Microsoft will unveil it's vision for cloud computing and building applications that seamlessly bridge the gaps between PC, Web, and phone. Windows 7, the next version of Windows, will be a big focus with 21 different sessions that drill down into the details.

Four Keynotes

• Ray Ozzie will talk about the new world of Software Plus Services, with Bob Muglia joining him, to unveil the new Cloud Computing platform.
• Steven Sinofsky and Ray Ozzie will talk about building immersive user experiences and give developers a first look at the next version of Windows, Windows 7. Scott Guthrie and David Treadwell will join Ray and Steven to dive deep on the latest Win32 and .NET platform advances that enable a next generation of user experiences spanning multiple devices, including a look at the latest developments in .NET, Silverlight, “Live Mesh”, and the rest of the client platform.
• Don Box and Chris Anderson will look at Microsoft’s latest technologies through the eyes of working developers.
• Rick Rashid, SVP of Research, will talk about how Microsoft research is helping to shape the future of computing.

Sneak Peek - In this video Dave Campbell, a Microsoft Technical Fellow and SQL Server guru, talks about what his group has been working on. Dave is giving a PDC session on data-driven applications that span devices, desktops, servers, and the cloud. Learn how cloud-based data services will change the way you develop and deploy applications, and how SQL Server technologies are evolving to help build those apps.

Register Here - PDC is always sold out so you might want to register now. 

Billions of VC Dollars in Boston

Commonwealth Capital held their annual open house this week at their Winter Street offices on "VC Hill" in Waltham. VC Hill is to Boston/Waltham what Sand Hill Rd is to Silicon Valley...the center of Venture Capital for the region.

Commonwealth Capital recently closed on a large new venture capital fund. Longworth Ventures, another Boston/Waltham based VC firm, also recently closed a new fund. In fact, over the past year or so, several Boston firms have raised over $2 Billion in venture capital. While the financial markets on Wall Street are in a panic, the venture capital community in Boston is strong, with billions of dollars to invest in innovative startups.

Boston based VC firms that have raised funds over the last year or so include; Flybridge Venture Capital, Spark Capital, Fairhaven Capital, Commonwealth Capital, Longworth Venture Partners, Battery Ventures, 406 Ventures, Ascent Venture Partners, and Staley Capital. The total funds raised exceeds $2 Billion. If you look over the past three years the funds raised in Boston exceeds $10B, with giant firms like Polaris Ventures, Highland Capital, and General Catalyst raising huge funds.

Microsoft is making a big commitment to innovation in Boston area as well. Microsoft has established a campus at One Memorial Drive in Cambridge, strategically located right next to MIT, just across the river from Boston.

The company has established a new research lab there under the direction of Jennifer Chayes and Christian Borgs that will work with MIT, Harvard, and other area universities to further strengthen the research community in Boston.

There is also a group called Microsoft Startup Labs, a kind of internal idea incubator for quickly building and testing new products and services. The lab, under the direction of Reed Sturtevant, is recruiting a top notch team of developers and former entrepreneurs.

There are several other Microsoft groups at the Cambridge campus including a UC design team and the App Virtualization team. All of them are hiring.

See Microsoft Careers for a complete listing of job openings in the Boston/Cambridge area.

It’s Microsoft’s intent to work closely with Boston area universities, research labs, and the venture capital community to ensure the Greater Boston area remains a vibrant center for entrepreneurship and innovation.

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Olympic swimming gold captured by Silverlight

Have you seen the amazing Olympic final in the men's swimming 4X100 relay? World records were set by many swimmers in this race and it all came down to the final touch at the wall. The Americans beat the heavily favored French team by .o8 of a second. You can see it again thanks to Microsoft's Silverlight and NBC.

The Wall Street Journal says NBC is providing some 3,600 hours of coverage of the games, about 75% of it live, across its broadcast and cable networks and its Web site -- even as it works to keep unauthorized feeds from its potential audience in the U.S.

The quality and clarity of the Silverlight video is absolutely amazing. I don't normally watch video on my PC because of it is usually slow and poor quality. Not any more. This is fast, no jerky motion, and awesome quality. Note the "powered by Silverlight" logo in the lower left hand corner.

You can watch continuing coverage of all the Olympics events on MSN.

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Mac vs PC - Mac twice as expensive

Macs have always been more expensive than PCs. The Mac has traditionally had about 6% market share, and have recently "popped" up to around 8%. It is expensive to be cool...twice as expensive. Joe Wilcox at eWeek compared the prices of Apple laptops and desk tops to PCs by Dell and HP, and found that Macs were two to three times as expensive as PCs.

It is a big market and there is room for everyone, but 92% of the market still prefers the PC. Competition drives prices. There is lots of competition in the PC market place, and none in the Mac market. That explains most of the price difference.

Nothing stirs up a debate like a comparison of the Mac to the PC. The Mac fan boys come out of the woodwork anytime there is a discussion any where.

Personal preference. Some people absolutely must have a Harley, while others prefer a Honda. Some prefer a Volvo while others like a Ford. The price differences are huge, but a small portion of the market is willing to pay it.

Personally, I have always used a PC and am very comfortable with it. I have used a Mac when visiting friends and it is just enough different to be annoying. Simple things like "right click", keyboard short cuts, setting preferences, and even differences between IE and Safari browsers just slow me down too much. Mac users probably have the same hassles when they try to use a PC.

Comfortable habits - It is all about what you get comfortable using. About 95% of the market is comfortable using PCs. That is just the way it is, and it works both ways. About 70% of the market is more comfortable using Google too. Technical comparisons and price differences don't matter for some segment of the market place. It has always been that way...and always will be.

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How to partner with Microsoft

Microsoft's Worldwide Partner Conference was held last week in Houston. If you didn't attend you can see videos of sessions here.

I get questions every day from startups wanting to know how to partner with Microsoft and how to get access to people and programs. This post is an attempt to answer a lot of those questions.

 How to start partnering with Microsoft

Become a partner. The first step is to sign up on-line as a partner. Microsoft partners are eligible for lots of free on-line training that covers technology, support and business.

Marketing help. Visit the Partner Marketing Center to learn about how you can participate in Microsoft marketing campaigns and resources to help you build your own campaign.

Build your sales channel. Microsoft has a Partner Community program that helps you find appropriate channel partners and build alliances.

Get free software and support. The Empower Program for ISVs helps new software companies get software, consulting, and MSDN subscriptions for the low price of just $375. The software alone is worth over $10,000.

Join the ISV community. Microsoft has a special ISV Zone for software companies. Find partners, get leads, get beta software, and get involved in the community.

Microsoft Startup Zone. If you are a startup you should visit the Microsoft StartupZone. The StartupZone is managed by the Emerging Business Team which is focused on helping startups build a relationship with Microsoft. There is a special Partner Section of the StartupZone with lots more information about specialized programs that might be right for you.

Emerging Business Team. How can the Emerging Business Team help you? It depends on the stage of your company and what type of help you need.

If you are in the development stage we can sometimes help you get access to beta software or get you access to our performance labs and testing labs. If you are launching your product we can sometimes hook you up with a relevant Microsoft marketing campaign. If you have a product that complements a Microsoft product or adds functionality we can introduce you to the product team for a possible closer partnership. If you are already actively selling to customers we can sometimes introduce you to the Microsoft Account Manager for those customers. We can also refer you to Systems Integrators who might be interested in picking up your product.

Who can help my startup? The Emerging Business Team is organized by product area. Visit Microsoft StartupZone to see who covers each area, and how you can contact them.

Microsoft is serious about partners. There are thousands of people at Microsoft dedicated to helping partners succeed. Take the first step and join the partner program.

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Microsoft Revenues Top $60 Billion - up $9B over last year

Microsoft (MSFT) announced revenues topped $60 Billion for the year ended June 30, 2008, an increase of 18% over last year. This was the largest annual revenue growth since 1999.  Profits were $17.6 billion, up more than 25 percent from a year ago.

Growing a Yahoo every year - Microsoft is strong and growing. Revenues were up $9 Billion over last year. Just to put that in context, Yahoo (YHOO) recorded total revenue of less than $7B for the whole year last year. Microsoft is growing more than a Yahoo a year. This is truly amazing.

All divisions reported strong increases. Here is the  breakdown of the 4th quarter numbers by group;

Windows Client: Revenue $4.37 billion, up 15 percent;
Profit 3.23 billion, up 16 percent.

Server & Tools: Revenue $3.74 billion, up 21 percent;
Profit 1.37 billion, up 39 percent.

Online Services: Revenue $838 million, up 24 percent.

Business Division (Office): Revenue $5.26 billion, up 14 percent; Profit $3.34 billion, up 12 percent.

Entertainment and Devices (Xbox, Zune): Revenue $1.58 billion, up 37 percent. Profitable for the full year.

 

Strong Growth - Management offered the following guidance for the full fiscal year ending June 30, 2009:

Revenue is expected to be in the range of $67.3 billion to $68.1 billion.

Operating income is expected to be in the range of $26.3 billion to $26.9 billion.

Diluted earnings per share are expected to be in the range of $2.12 to $2.18.

All divisions are doing well and forecasting strong growth next year. Microsoft's cash balance stands at nearly $24 Billion, and is growing at over $1B per month.

Microsoft has been repurchasing common stock on the open market, totaling $12.5 Billion last year, and $27.5 Billion the year before. These stock buy backs lower the number of outstanding shares, which in turn, increases the earnings per share.

PaidContent has some good analysis of the numbers.

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