Business Insider Research Morning Call 9/14/11

Windows 8 Is Taking The Wrong Approach To Competing With The iPad
Microsoft let developers and the public take a look at Windows 8, which will work on both tablets and PCs. The software is beautiful and technically very impressive in many ways but it is taking the wrong approach to compete with the iPad and other tablets that are disruptive to Microsoft’s legacy PC business. 

The key idea behind Windows 8 is that it will be the same OS on tablets and PCs, except with different skins and tweaks for each.

Here’s why this is wrong:

  • Tablets are a different form factor and interface paradigm from the PC, so software made from the ground up for tablets is always going to be superior to software made for both. The idea behind a tablet/PC OS is that it’s more powerful: Microsoft showed off Windows 8 tablets running advanced software like Photoshop and Excel. But this is the wrong way to look at this. Image editing software that’s built from the ground up for tablets is going to be better for tablets. 
  • Tablet software is DISRUPTIVE to PC software, which is what Microsoft does. The key point of disruptive products is that they are in many ways technically inferior to the products they replace and yet grab market share because they’re better in one or a few key respects. For tablets, this is ease of use. Photo editing software for tablets is always going to be less powerful than Photoshop but it’s probably going to be more intuitive, built from the ground up for a touch interface where users can manipulate things with their fingers. Apple’s GarageBand music app for the iPad is much less powerful than other music apps. But it’s also much more intuitive and a pleasure to use. By showing off how Windows 8 tablets are going to have more “powerful” software than iOS tablets, Microsoft is stuck in the classic innovator’s dilemma: it’s doubling down on the features of its offering that are getting disrupted instead of trying to disrupt the disruptors.  

PCs are still much more powerful than tablets for doing specific tasks like writing, spreadsheets and heavy-duty professional work. But tablets are disruptive to the PC paradigm by making interaction with software more simple and intuitive, at the expense of “power-features” that most users don’t want or need anyway. (Has your grandmother ever complained that her PC doesn’t have enough advanced features?) And if they are with iPads at $500, they’re only going to be more so with Android tablets at $200, which will be the reality by the time Windows 8 ships. 

Right now tablets are mostly great for media consumption (which is already most of what people do on computers), but as tablet software improves, tablets will become more convenient and better for more and more use cases and, in classic disruptive fashion, relegate the PC to specialised tasks, just like the PC did to the mainframe in the 1970s and 1980s.  

Tablets are the future of computing. This means that tablet-specific software will win. Instead of doubling down on its PC business and trying to PC-ify tablets, Microsoft should double down on tablet-first software.

Determined to Win the Motorola Patents, Google Raised Its Bid 33%
Determined to win the Motorola patent portfolio after seeing Nortel’s patents go to its rivals, Google upped it’s bid by $3 billion dollars, or 33%, to get the deal done. An SEC filing confirms that Google moved quickly in the weeks following Apple and Microsoft’s purchase of the 6,000 Nortel Networks patents for $4.5 billion. The discussions between Google and Motorola began in early July,and after nearly a month of confidential discussions, Google offered $30 per share in an Aug. 1 letter to Motorola Mobility’s board. At the time, Motorola Mobility’s stock was trading around $22 per share. Motorola Mobility rejected the first bid (even though there were no other bidders)  and asked for $43.50 per share on the advice of Silicon Valley investment banker Frank Quattrone of Qatalyst Partners. Google then suggested a price of $37 per share before finally agreeing to pay $40 per share on Aug. 9. It’s important to note that the final $12.5 billion price tag exceeds the $9.1 billion combined total that Google had paid for the 136 previous acquisitions that it has completed since going public in 2004. Mobile industry insiders expect Google to arm its OEMs with the patent portfolio (17,500 patents and another 7,500 applications) in their looming battle with Apple.

And the patent battle between Apple and Google/Motorola already appears to be heating up with Apple claiming the terms of the acquisition deal between Google and Motorola mean Motorola no longer has the authority to assert its patents against Apple. If Apple’s  motions to stay are successful, one potential outcome is that these two patent suits may not go forward until after the Google-Motorola merger, which would make the suit Apple v. Google instead. Industry insiders have told us that Google would prefer the battle stay between Apple and it’s OEMs and is arming them accordingly.

Samsung sues Apple in France over patents. This war keeps escalating.

“If you have a very compelling story, a robust business and there’s moats around it and it isn’t going away over night, the IPO window is still very much open”—Jeremy Stoppelman, CEO of Yelp, saying that his company still intends to go public and other big tech startups can still go public. This is right.

Pent-up demand for the iPhone 5 is through the roof, according to a ChangeWave Research survey. Customers polled are either “very likely” (13%) or “somewhat likely” (18%) to buy the iPhone 5 when it comes out. Apple’s slow release cycle may be one of their most underrated assets. It doesn’t just ensure that each new device is “just right” instead of half-baked, but it creates great pent-up demand. It seems that the only thing that will limit Apple’s iPhone 5 sales will be how much of them it can make.

Twitter will now show you “Promoted Tweets” (ads) whether or not you follow the brand responsible for the ad. This will cause a brief outrage among users, and it will quickly die down. But it’s a necessary step: Twitter is the new TV, and TV comes with commercial interruption.

Google just rolled out its Flight search engine. It’s pretty good, and a nice opening move in a big market where specialists like Kayak and Hipmunk are doing a better job and that Google just spent $800 million to get into with its ITA acquisition. For all its dominance, Google hasn’t been very successful in vertical search (see e.g. shopping and jobs) and it will be interesting to see whether a good-not-great product plus Google’s distribution is enough.

Craigslist is suing eBay for allegedly using confidential information to build its own competing listings service.eBay is a big Craigslist shareholder but the two companies have been at loggerheads for a while. The listings market is big, juicy and has network effects, which makes it worth going into on its own, but more than that it’s a threat to eBay’s core marketplace business. In Norway, where Schibsted dominates free online listings, eBay never got any traction because people sell things through listings, not auctions.

People at TechCrunch’s big conference are chattering that we’re in a tech bubble. This still means that we’re not in a bubble.

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