Microsoft Mobile Dilemma: The choice between equipment mode and service mode

Ben Thompson, a stratechery contributor to the US Technology blog site, recently wrote about the difficulties Microsoft faces in the mobile business world and has made some suggestions for the software giant, Ben Thompson. The following is the full text of this article. It is unfair to say that "Microsoft has missed the mobile market": As early as 2000, Microsoft had launched its Windows Mobile operating system, and Google bought Android because of concerns that Microsoft would dominate the mobile market as it did in the PC era.

But as far as mobile devices are concerned, the focus is on touch and a simplified user interface, and on the arm architecture, which is a lot different than personal computers. That means that everyone has to start from scratch, so Microsoft doesn't have a natural advantage in the Mobile world.

Satia Nadra (Satya Nadella) faces a difficult task, which will make him sleep at night. The power of mobility is that mobile devices are always associated with users, thus taking up the time that people would otherwise spend on personal computers. Whether on the bus or in the waiting room, mobile devices have penetrated into every aspect of people's daily lives. Mobile devices are increasingly "stealing" user time from PCs, which poses a threat not only to Microsoft's growth but also to the company's cash flow.

In order to analyze the problems faced by Microsoft and find possible solutions, I think we should look at these issues from five aspects, namely:

1. Business model;

2. Equipment;

3. Services;

4. Patent;

5. Application.

The real situation of mobile market

1. In the mobile market, there are two viable business models: equipment sales and services, respectively. At the same time, there is a business model is not feasible, that is, the way to authorize the operating system to profit. That's because the boom in the Android platform has killed that pattern.

2. For the equipment sales model, to be sustainable, the device itself needs to be unique (such as the iphone), and the company itself needs to dominate the channel and supply Chain (Samsung), or it needs to have a highly competitive cost structure (Lenovo and most other Chinese manufacturers). In the final analysis, all these elements need to be supported by huge sales volumes in order to achieve economies of scale.

3. For the service model, the ability to continue to operate requires the availability of as many devices as possible, a large cloud infrastructure and a commercial approach (such as Google's services on all devices that can bring advertising revenue).

4. Patents are a very important component of the cost of goods in developed markets, and the share of product prices is likely to be between 15% and 20%. The ratio is likely to rise or fall sharply, depending on the number of patents a smartphone manufacturer can use to cross-authorize with other vendors. But patents (and their associated costs) are largely ignored in China, Indonesia and other large developing markets.

5. For the time being, an app store that encompasses not only well-known applications but also day-to-day utilities, such as banks and airlines, is no longer a factor in making businesses unique, but becomes a gateway to entry.

The situation that Microsoft faces

1. Microsoft's intention to develop Windows Phone (and its previous Windows Mobile) is to make a profit by licensing the operating system to vendors. However, this business model is no longer feasible. Currently, only 10% of Windows Phone smartphones are produced by original equipment manufacturers (OEMs) outside Nokia and are expected to fall further.

2. Microsoft has already acquired Nokia, which it hopes will seek to adopt a business model of equipment sales in this way. But while the Nokia Lumia smartphone has excellent camera and production quality, it lacks a competitive app store and is negatively affected by the difference. In addition, the Lumia smartphone has not been able to produce a larger scale of production, and only in the case of a very low price to sell the success of the sales, which led to a serious pressure on profit margins.

3. Microsoft Office software suite has been available for Windows Phone devices for a long time, but only recently has a restricted version (for mobile phones) been published in the Apple and Google Play app store. Bing search engines and Outlook are already open to iOS users, but not the default installation applications. Cloud storage services OneDrive has landed on Apple and Google Play App Store, and cloud computing platform Azure is providing cloud resources for iOS and Android app developers.

4. At the same time, Microsoft has a wide range of patent portfolios. It is reported that the company's annual revenue from the Android device manufacturers reached 2 billion dollars.

The 5.Windows Marketplace mobile App Store has slowly captured some of the top apps (Facebook, Twitter, and Facebook's photo-sharing social platform Instagram) but is attracting hot new apps (like "Burn After reading"). Photo-sharing applications such as Snapchat and so on have been lagging behind for several years. And there are major loopholes in the app Store for "utility" applications, such as banks and airlines, that need to be filled.

For application developers, Microsoft has not yet formed any influence.

What should Microsoft do?

1. First, Microsoft needs to make a choice between equipment and service patterns. Now Microsoft is taking two-pronged approach, but the problem with this strategy is that the company inevitably needs two-line warfare, which requires sacrifices in one respect. If Microsoft wants to provide better service to the device, in order to support the device sales model, it is necessary to limit the services offered on each competitor's device, while the competitive advantage of its own equipment is limited if Microsoft wants to provide services on rival devices.

This creates a dilemma for Microsoft. Google, by contrast, has a very clear focus on services (Google's services on the iOS platform are almost as good as those offered on the Android platform), while Apple has a very clear focus on devices (icloud services are available only on the iphone).

2. Second, Microsoft can take the strategy of abandoning the device. In terms of the business model of equipment sales, this model is worth adopting only if the company can sell the equipment at a higher profit margin. While the profitability of the device sales model is not up to the software licensing business, the absolute monetary value of a high-margin device is huge (for example, the iphone is more than $300 trillion).

But Nokia Lumia smartphones are not competitive in the high-end market. So far, all Lumia handsets have been sold in low-end markets (less than 150 dollars) and sold at a loss. In addition, Lumia handsets are so poorly sold that they are not competitive in the supply chain, at least after Nokia spun off its mobile phone business. Ideally, the sector should be sold entirely to a Chinese manufacturer that has not yet aligned itself with Google.

3. Again, Microsoft should adopt a service model. In this model, Microsoft needs to be in touch with all the devices, and as I've said before, the service pattern is much more consistent with Microsoft's corporate culture than the device sales model. In addition, Microsoft has a lot of products to fit this pattern, and holding a "trump card", that is office. Microsoft should use the "trump card" to fight Apple by offering exclusive office software on the ipad for a specific period of time; in exchange, the ipad will have to use Bing as its default search engine, while icloud needs to integrate more fully with Azure, and provides embedded Xcode support for Azure cloud services.

Apple has the most quality users, who are willing to pay for the service. Microsoft is in dire need of these users, which means that de la needs to go to Cupertino (Apple headquarters) and negotiate with sincerity.

4. It is particularly important to differentiate Android and use Microsoft's own services to provide Chinese manufacturers with a version of the AOSP (Android Open source project), App Store, and patent protection.

This is one of the most misunderstood aspects of Lenovo's takeover of Google's Motorola Mobile. The acquisition of Motorola Mobility was of great value to Lenovo because it included a cross licensing agreement for Motorola Mobile's proprietary portfolio. If it is not possible to cross-authorize patents with other smartphone manufacturers, the share of copyright costs in mobile costs may well exceed the range of 15% to 20% described above, which in fact destroys Lenovo's cost-structure advantage.

That is why Lenovo is still selling handsets to countries with inadequate intellectual property protections, and Motorola Mobile's proprietary portfolio will improve its competitiveness in international markets.

The situation is also non-virtualized for other Chinese smartphone makers, such as cool pie. Patents have built a "fortress" that separates Chinese smartphone makers supported by MediaTek from the wall, while Samsung, supported by Android, dominates the most developed markets. And Microsoft is in a unique position to enable local manufacturers already competing with Samsung in the Chinese market to do the same thing in the international marketplace. These companies will use Microsoft's services in exchange for patent protection in overseas markets, just as they use non-Google Chinese services in the Chinese market.

5. Build a AOSP Play App store to replicate Google's GSM API (application interface) as far as practicable, while stimulating the "preacher" of Microsoft's global platform to encourage Android app developers to change the string They only need to make minor changes to their Android apps and then submit the modified application to the Microsoft Asop App Store. Developers don't feel bad about having to give up their windows phone apps; instead, they will love the fact that they no longer need to support a platform that does not provide a return on investment.

"The Android camp is Technica," said Peter Bright, editor Pitt Blette of the famous American technology blog, Ars. This, I think, is technically accurate but misleading.

One might say that this strategy will completely betray Microsoft's current path of development. This statement is not only a conservative statement, but also a point of view-objectively speaking, Microsoft's current mobile strategy has failed. For Ballmer (Steve Ballmer), the acquisition of Nokia was the right decision, and before that he wasted his money and time on a device strategy based on a "stillborn" platform. Microsoft still has a big advantage in terms of cloud services and Office software, and Ballmer's strategy makes it dangerous.

Although the idea may be naïve, sometimes miracles do happen, and perhaps that is why Bill Gates returned. For an operating system company, abandoning the operating system strategy and switching to a former competitor (Apple) strategy, however high the likelihood of success, requires extremely strong "political capital" to support it, and no one in Microsoft has more of that capital than the founder of the gates.

As Steve Jobs, the late Apple co-founder, said at the Macworld conference in 1997:

"We have to get rid of the idea that if Apple wants to win, then Microsoft has to lose," he said. We have to embrace the idea that if Apple wants to win, then Apple will have to do its job, and if someone else is willing to help, that would be great, because we need as much help as possible ... The era of competition between Apple and Microsoft has come to an end, and what we need to do is to develop healthily so that Apple can make a huge contribution to the industry and become healthy and prosperous again. ”

The same is true for Microsoft today, where the software giant needs Apple and iOS. Just as Apple needed to be traced back to its focus on developing quality products, now Microsoft also needs to return to its "communication and development" (embracing and extending) source.

(Responsible editor: The good of the Legacy)