Thursday, January 22, 2009

What the Microsoft Layoffs Mean For Surface

Microsoft had a bad quarter...a really bad quarter. It is set up to have a wretched year.

What's harder to remember is that MS still NETS over $150,000 per employee...Yet, MS is trying to save 1.5% ($700m) of its annual gross by cutting ~2,500 jobs this year(5000 over 18 months)? Steve Ballmer's argument just doesn't add up.

The layoffs aren't about missing its guidance. An inordinate number of the shareholders are the same employees MS will be axing.

This Layoff is About Refocusing.

Microsoft is really good at operating systems. Windows and Office support the rest of the business. If I were Steve Ballmer, I would be staring long and hard at the Entertainment & Devices Division (home of Surface). The division has been either a loss leader or minimally profitable since its founding.

- XBox hardware is finally doing alright. It is in a strong #2 position.

- Games Publishing has and will continue to lag. E&DD could quickly pare down development on the glut of "me too" titles.

- Microsoft's mobile business has been disappointing, but it needs to hold this position.

- Zune really should fold into the mobile effort, that's a good place to save.

This Leaves Us with Surface.

Robbie Bach, president of the division, has repeatedly considered killing Surface. $12,500 kiosks are a hell of a business to build in this economy. The hardware margins will never match those of software...And it doesn't fit into Bach's mandate.

The mission of ED&D is to develop an integrated hardware/software product line that goes head to head with Apple. Surface doesn't fit neatly into this picture and won't until large projected capacitive displays mature.

ED&D has set itself up for a bloody fight in the domestic consumer space. It's got Apple on the left and the jokers at HP/Sony/Samsung to the right.

Apple's interests aren't and can't be aligned with Microsoft's. Apple also has a lot of cash on hand. This warchest will only grow as it continues its push into international markets.

Bach needs to drop the expenses related to Surface to sure up bigger lines of business.

Here's My Guess for Surface.

MS can leverage the marketing coffers of partners at HP, Sony and Samsung by sharing the multitouch pie.

Microsoft really has no business manufacturing its own hardware. Hopefully, MS's stake in N-Trig will convince them to step under the Surface brand umbrella. Surface touch enabled products could then be sold through said partners.

N-Trig's hardware is sweet for smaller consumer products, but it's a couple of years away from matching Surface's durability and reliability in tabletop kiosk situations.

Hopefully, the vision-based Surface hardware platform will continue to evolve. An array of next generation laser projectors might solve the cost, lamp replacement, heat dissipation and form factor issues that plague the current hardware. The knowhow to do something like this already exists. Implementation and channel marketing could and should be developed and produced in partnership with HP or Dell.

Paradoxically, this is good news for the multitouch software market.

If Microsoft stops dawdling in the hardware space, the Surface SDK can settle in where it belongs: In the Windows division. The Windows division has the real money at MS and it has a good reason to direct its resources toward expanding the market for WPF/multitouch.

Everyone on earth will need a new copy of Windows...and a new HP/Samsung/Dell Surface touchscreen.

1 comment:

  1. Good post Jonathan. I think it's possible you're right in your assessment of how the Surface team is viewed in Robbie's mind. It's true that, in its current form, Surface will likely never be a big money maker. BUT, I think they are already moving in the right direction in terms of aligning with the Windows and .Net teams (WPF 4.0 will incorporate everything from the Surface SDK that it possibly can, only leaving out features that rely on a vision system). AND, I really think there is a good chance that we could see an evolution of Surface into a much more enticing product.
    The thing is, I tend to agree that MS shouldn't be manufacturing the hardware, but it was apparently the only way to develop the kick-ass vision system we have today. The multi-touch hardware form N-trig and NextWindow is frankly no where CLOSE to as responsive or useful. I really hope that we don't see some hasty cuts in budget that result in a loss of any of the great tooling and UX guidance that has been flowing out of this team.