For want of a pricing model, the product was a flop

There are 3 simple, time-tested rules that set a company up for success in the open market:

1. Create: Create a great product with differentiated features
2. Undercut: Launch it at a competitive price point
3. Sell: Facilitate sales by eliminating all doubt from the purchasing decision

Let's evaluate the Microsoft Surface RT product against these rules:

1. Create
On the surface, the Surface is a great product. The finished product does not belie the meticulousness of its creators, and I know Microsoft has invested an unprecedented sum of money in the device's fabrication. Kudos!

2. Undercut
Alas, this is where the Surface falls flat, pun intended. The tagline is, "Click in". Yet, the base model does not come with a keyboard. The argument is you get a 32-GB device with a keyboard for the same price as a 32-GB iPad. The truth is you only get about 22-GB of space on the Surface; the operating system, like humanity, is obese without scope for remediation. It is *not* sufficient to compete with the incumbent on features alone. You have to beat the incumbent on price.

You must wonder if I have forgotten about the keyboard. I have not. The Surface has been heavily marketed with the keyboard. If the marketing sticks, people will perceive the keyboard as a necessary appendage without which the device's true potential cannot be unlocked. This relegates the base model "adopted child", "neutered pet" status, thereby hurting its adoption.

The keyboard is the albatross that will sink the Surface RT.

I predict that the base model will sell very poorly, making the first Surface model that gains any traction to be the $600, 32-GB model.

3. Sell
This brings me to the Sell piece. If I am about to spend $600 on a computer equivalent, I am going to evaluate the product using the following criteria:

a. Build Quality: The Surface comes up aces in this regard. 'Nuff said.

b. Usability: This is a relative unknown with the Surface. Windows 8 is receiving mixed reviews from its early adopters, especially on the "Familiarity and Ease of Use" scale. This augurs poorly for the Surface RT.

c. Applications: The applications ecosystem for the Surface is miniscule in size compared to the Google Play Store. I don't even want to compare it to the iOS Store because that would be useless and unfair. Reports have been released that Microsoft is paying developers to build apps for Windows 8, which is a mistake in and of itself; Charlie Kindel's articulate prose addresses the many cons of this approach. Back to applications - people are making the argument that the Surface RT can be used as a laptop. This is a dubious claim! You cannot run existing Windows applications on the Windows RT because they are designed to run on traditional Intel chips. The Surface RT is built on the same CPU technology that powers the iPad and the Google Nexus 7, among other tablets. If you want to use this device as a laptop, you will have to wait until the apps and applications that you need and love are ported over to the new architecture. This can take a long time.

d. Degree of Buyer's Remorse: Is the device worth "swiping" for at the checkout stand? Is there a competitor that will give me greater bang for my buck right now, not 2 years from now?

The Surface falls short on all but the first criterion. This increases the doubt in my mind as I am about to fork over my hard-earned $600, thereby increasing the obstacles in the path of making a Sale. I am not alone in this line of thinking.

Microsoft has a potential hit product on its hands. My advice is it replace the team that promulgated the daft marketing, pricing and sales strategy with a set of go-getters like the ones that worked on the XBox 360. Unless Microsoft does something in short order, the Surface RT will go the way of the daft dodo.

Apple and WhatsApp - the future of messaging

WhatsApp team has proven that its service can scale - 10B messages a day. Apple should consider buying WhatsApp to expand iMessage reach.

— Manoj Mehta (@manojhatax) August 23, 2012

Apple just had a Microsoft-esque month

The last 30 days have not been kind to the vaunted fruit. It is almost as if Apple Inc. has gone to the well too often and, much to the chagrin of its followers, has finally been denied the elixir that makes it, magical! Steve Jobs had the Midas touch. He is long gone, and the fabric of Apple is coming apart at its seams.

The rumbling on the bourse - Wall Street

The situation is so bad that the final bastion of its undoubting supporters, the financial analysts, has potentially switched sides. Heretofore, Apple was every financial analyst's darling because of its blockbuster quarters and unprecedented year-on-year growth. Every financial institution either has Apple stock in its portfolio or wishes it does. Until this last earnings report.

The word on Main Street

Apple has a polarizing effect on customers - they are either die-hard fans or harsh critics of its every move and product. Technologists are critical of the technical merits of its products. Mac OSX is a watered down version of Unix; iOS is not as open and customizable as Android; the iPad does not have expandable memory or slots for peripherals. All sound familiar? All of this criticism aside, Apple device sales, revenue and profit numbers showed no signs of abating. Until this last earnings report.

The Ad Man has left the building

Apple has the largest market cap of any company in the World. It is officially the Goliath in every market in which it has a foothold. It spends an inordinate amount of money on suggestive marketing campaigns that evoke memories of yore and a desire to covet its latest creations. Until this last marketing campaign.

An oft-told tale: The fall cometh after a meteoric rise

These missteps and issues are endemic of Microsoft post Bill Gates. Is Steve's absence finally felt? What happened in the last thirty days? For starters, Steve Ballmer finally slept in peace knowing that Apple is having a Microsoft-esque month. Seriously speaking, though a number of events have culminated in the past thirty-odd days, the ball was set in motion many months ago. I have analyzed Apple's fall from grace and distilled the reasons into five words: Samsung, Genius, Earnings, EPEAT, and Karma.

1. Samsung

Both its biggest competitor and general pain-in-its-arse, Samsung has locked in battle with Apple over patents, copyright and revenue shares. The courts are involved now, and the bickering has spilled over into the technology press. For the first time, Apple has come out as the evil wrongdoer in these proceedings. From my vantage point, it has definitely lost favor with the folks straddling the fence. It is not that Samsung is without fault. The company has filled its coffers by replicating the inventions of its direct competition or the companies to which it supplies parts. Apple is seeking $2.54 Billion in damages from Samsung. It claims that Samsung copied its designs to the point where customers could not tell Samsung and Apple devices apart. What hockum! How can someone, anyone, miss the SAMSUNG in that disgusting font plastered on the front and/or back of every Samsung device?

Even if Apple wins the case, its priceless product development and analysis strategies are now available for anyone to emulate. For a company with $125 Billion in the bank, who do you think stands to lose or gain from these revelations?

2. Genius commercials

The new Genius advertising campaign has been universally panned by everyone who has a brain and an opinion. The last time people were so united in their opinion of something was, wait for it... I got nothing. Adage ran a story claiming these were Apple's worst ads yet, and that this was the beginning of the end. The riff-raff has taken over, and without Steve Jobs sifting the chaff from the corn, we are going to be subjected to more "Genius"-esque ads.

3. Earnings

Aah, the reason financial analysts are bearish on Apple. Did you hear the news: Apple missed its earnings estimates, by a lot! Who is to blame: Tim Cook? Phil Schiller? The Apple rumor mill? No, it has to be Samsung! What if Steve Jobs was alive? What if...

Truth is, every company misses earnings once in a while. The death knell will begin to ring if this performance is repeated the next quarter. The ringing will hit fever pitch if this becomes the norm rather than the exception. Honestly speaking, the product pipeline needs a refresh. Here is what I think will rejuvenate the earnings report:

1. A brand, spanking new Apple product that is not the Apple TV, which I believe will flop, badly! Forget, for a moment, the field day Samsung will have as it claims that Apple plagiarized its market leading line of televisions. Apple works on margins, and in the TV biz, none exist.

2. A new iPhone that is not more of the same, old iPhone.

3. Office for iOS. You read that correctly. There is a whole market of business and information workers that do not use an iPad. Yet. Office makes the platform legitimate and will open the flood-gates for sales of the iPad, in particular.

4. EPEAT

The sleek, new Retina-display MacBook Pro has a dirty, little secret. It cannot be recycled in compliance with EPEAT guidelines. Apple announced that the design direction of its products was no longer consistent with EPEAT guidelines. This is just conjecture, but Apple, in its recently-acquired infinite hubris, must have believed that either the EPEAT guidelines would change or that government bodies would mend the rules for Apple. WRONG. In the shit-storm that ensued, state governments took Apple of their list of product vendors. Apple had to back-track on said announcement, and re-applied for EPEAT certification.

5. Karma

Developer angst is at its highest with Apple's recent products. The cup brimmeth over with criticism, and no pillar of Apple's developer story has been spared. To wit:

1. Mac OS X Mountain Lion has been receiving truly negative press about Apple's heavy-handedness. Features have been removed, prosaic defaults have been imposed, and many do not see the value in the $20 upgrade.

2. iOS 6.0 is due for release soon, and if the Mountain Lion trend continues, some key apps that launched with the original iPhone will likely be cut. Apple's torrid relationship with Google, yes over Android and plagiarism, has already opened the door for a new Maps app. There is talk about the YouTube app being cut from the final release.

3. iCloud, Apple's next billion dollar business, has not grown out of its diapers yet. In his thoroughly detailed review of Mountain Lion, Jon Siracusa astutely identified iCloud's shortcomings and inconsistencies. Developers want a consistent mechanism to leverage iCloud. Apple would be remiss to not heed these calls for change.

4. Mac App Store is seeing defections that the iOS App Store is yet to witness. A brouhaha about the draconian policies, sandboxing requirements for 3rd party applications, and non-uniform access to system APIs has developers up in arms. This piece by Marco Arment sums up the frustrations of Mac developers and future irrelevance of the Mac App Store. Though obvious, this warrants a mention - without compelling apps, the sustained growth of the Mac platform is in serious jeopardy. Additionally, Microsoft is launching Windows 8 in a few months, but the new platform has not been very well received by the developer community. Apple needs to move quickly and court these estranged developers. The result can only sustain future growth of the Mac platform.

5. Questions about App Store security have recently tarnished Apple's reputation. A user's account was hacked by some smart engineers, but they did not revert to technology. They called in to Apple Support, leveraged their charm and social engineering skills, and gained unbridled access to an unsuspecting user's account. This account of what followed sheds light on putting all your proverbial eggs in Apple's security basket. Scary stuff!

Epilogue

None of these things individually amount to much. Treated as a whole, the effect is greater than the sum of the individual parts. The short time-frame in which these supposedly random events have occurred might be a coincidence. Or it could be a harbinger for future Apple missteps. Dark days are ahead for the iconoclastic brand. I, for one, am going to watch this space closely.

The dilemma of pricing - What should Microsoft charge for the Surface tablet?

The Zune Debacle

In another life, I worked on the Microsoft Zune. I joined the team just after the v1 launch. The team was ramping up quickly, and the decision to start from scratch had just been made. This meant a whole new manufacturing process, new software libraries, new syncing software, new *everything*. Microsoft was going to pull out all the stops - leave no proverbial stone unturned - to unseat Apple as the king of music players. The team built a great product (hardware/software/desktop), with arguably better features than the iPod/iTunes offering. But Microsoft made one mistake in the execution - it got the list price of the Zune device wrong. Each Zune was priced exactly as its equivalent iPod.

If you were into music players in about 2007-08, you know how the rest of this story unfolded. The Zune never got traction in the market, and the product was finally taken off the market in 2011. Prior to quitting Microsoft in 2008, I interviewed with the Windows Live Hotmail team. The final interview, the Product Unit Manager or General Manager of the team, asked me what I thought was the biggest mistake Microsoft made with the Zune launch. I said that they suffered from hubris, that they thought people would fork out the same amount of money for an unheralded product as they would for the mighty iPod. This answer upset him, and we got into a protracted discussion about pricing and the perception of quality. People equate a lower price point with kitsch - a product of questionable quality. A few weeks after this discussion, Microsoft dropped the price of the Zune by $20 (to $179), but it was too little too late. Needless to say, I did not get the job either. My fate, it seemed, was intricately tied to that of the Zune.

The iPad is King

Fast-forward to 2012. Microsoft is on the verge of releasing a new hardware product. It is called the Surface, and many claim that it is the first real competitor to the iPad. It looks rugged yet gorgeous, touts a number of differentiating features, and is one of the pillars of the Windows 8 story. Like 2007, there is another Apple product on the Tablet throne - the iPad. Introduced in 2010, the iPad has become the de facto tablet product today. Its appeal spans every age group on the planet - toddlers, children, teens, geeks, guys, girls, suits and grand-parents: they all love the device. A huge iPad ecosystem has materialized out of thin air. Samsung, Amazon, Google, Motorola, et al have failed to shake the device's market dominance. Most of all, no company has been able to make a profit from a 10" tablet device at the $499 price-point. Apple, on the other hand, has leveraged its lead in operational excellence and supply-chain management to eke out a measly 40% profit on each iPad sold.

The Surface pricing dilemma

The Surface is to hit the shelves on October 26, 2012. Microsoft is once again faced with a difficult decision on the device - how much should a new Surface set a customer back? Let me play out the options Microsoft has for the entry-level Surface's price:

1. > Equivalent iPad ($499): Great product; wrong price; device will fail

2. Same as equivalent iPad $499: Great product; wrong price again; device will fail.
Microsoft will be remiss to repeat the Zune mistake with the Surface. There is no way a new product can compete with the established market leader at the leader's price point.

3. Lower than equivalent iPad ($449, $399): Great product; great price; good chance to become #2 player in first year.
Microsoft will end up losing money at this price point. Additionally, this will leave its ODMs in a tough spot. Most ODMs are not cash rich to the point of booking losses. But Microsoft can and should. There is a precedent for this - the XBox 360 continued to lose money until the end of 2011 when economies of scale and technology maturation allowed the hardware costs to drop below the sales price of a new console. With more than US$ 15 Billion in the bank, this is a loss Microsoft should take in order to build a new business.

Let us see how this plays out. These are exciting times for customers!

Determining a data-center's energy efficiency score

A good read at the Data Center Journal on how the energy costs can be reduced in a data center: http://www.datacenterjournal.com/facilities/cfd-for-data-centers-driving-down-cost-and-improving-ease-of-use/.

The Social Economy - Why CEOs need to embrace social

The McKinsey Global Institute (MGI) published its research on the importance of CEOs embracing "social" (emphasis mine):

MGI’s report, The social economy: Unlocking value and productivity through social technologies, explores their potential economic impact by examining their current usage and evolving application in four commercial sectors: consumer packaged goods, retail financial services, advanced manufacturing, and professional services. These technologies, which create value by improving productivity across the value chain, could potentially contribute $900 billion to $1.3 trillion in annual value across the four sectors.
Two-thirds of this potential value lies in improving collaboration and communication within and across enterprises. The average interaction worker spends an estimated 28 percent of the workweek managing e-mail and nearly 20 percent looking for internal information or tracking down colleagues who can help with specific tasks. But when companies use social media internally, messages become content; a searchable record of knowledge can reduce, by as much as 35 percent, the time employees spend searching for company information. Additional value can be realized through faster, more efficient, more effective collaboration, both within and between enterprises.

To summarize, use social networks to drive engagement both inside and outside your organization.

Market segmentation 101

The creator of Bidsketch wrote this piece about how market research led to a new pricing model that doubled his monthly revenue:

What industry do they belong to?
How many users do they have?
How often do they use Bidsketch?
What features do they use the most?

The next step was to have phone calls with most of the founders/CEOs on the list.

Some key questions I asked in my phone calls:

How many employees do you have and how many people use Bidsketch?
How much time does Bidsketch save you on each proposal?
How important is feature X to you/your team?
Describe your typical/ideal proposal workflow.

In order of importance:
1. Know your users
2. Understand their needs
3. Determine the right customer segments - 3 is a good number of segments
4. Target each segment in your pricing model

Extra credit - Most users don't get the difference between Basic and Advanced. Ergo, they opt for Basic, because it is cheaper. Create segments that provide an association between users and their actual profession/status.