Well Rounded Companies

People often mention the term well rounded to describe folks who are good at more than one thing. John is a biology wiz, but he also knows a lot about sports and plays basketball every week. John is also well educated in history, given his fascination with medieval Europe. We are all familiar with this term in regards to people, but I’ve been recently thinking how appropriate this term is for describing companies. For this post, we will be taking a look into a few well-known companies: Apple, Google, and Microsoft to see just how well rounded they are. I have picked three easily comparable criteria to gauge these companies by: design expertise, functionality expertise, and empathy (arguably the hardest characteristic to measure). These are three attributes that I believe substantially differentiate companies (unlike say, business models, which are necessary but not sufficient attributes), and are prime reasons for their success. This comparison only works when compared in relative terms; we can’t compare a tech company to a luxury car manufacturer since they solve different problems. 

Apple 

It is hard to argue that Apple’s design expertise is anything other than prudential. Apple products are renowned for their hardware differentiation. Competitors base their designs on the paradigm set by Apple, not vice versa. In terms of software design, I would argue that Apple is in the lead, but not by the country mile it leads in hardware. 

A common complaint people have with Apple products is their lack of functionality. Functionality is an umbrella term for anything a consumer may want to do with the device. Mac OS X notoriously doesn’t have many games on the platform (although this has improved lately), iOS has no file explorer, and so on. Compared to the functionality Android and Windows offer, Apple devices are much more limited in functionality. There is nothing inherently good or bad about this point; the minimum functionality must meet the minimum functionality demands of consumers, and anything more can actually lead to confusion and dysfunctionality. 

Finally, let’s talk about Apple’s empathy. What I mean here of course is how well Apple understands the needs, desires, and all that other gooey stuff of its consumers. An empathetic company is able to correctly predict what customers may want, and offer that amount in terms of functionality. Judging purely on the extraordinary success of the iPhone and Mac platforms, I would characterize Apple as an extremely emphatic company. In most cases, it accurately predicts the problems a user experiences, and solves them a way they can appreciate. The key here is to focus on the average user. Apple does not cater well to users on the outskirts, and nor does it attempt to. 

Google 

Although Google was off to a slow start, their design expertise has improved dramatically in the last few years. Android is no longer the terminator OS from the future - it is colorful, friendly, and humane. Chrome OS is similarly playful, and appears to be improving rapidly. In fact, all of Google’s products are relatively well designed. In a vacuum, Google’s design is impressive, but it still had a long way to go to come near Apple. Google’s products are often difficult to navigate and are loaded with options (functionality), to the detriment of their design. 

The functionality Google products offer is vast. You can do pretty much anything you would want to do with a computer on Android. Gmail has hundreds of different settings that you can tweak to your liking. Google’s portfolio of products and services is expansive; the term focus does not exist in Google’s otherwise complete dictionary. As hinted earlier, functionality is a blessing and a curse. Too little and nobody will use your product. Too much, and nobody will understand how to use your product. Finding the right balance is difficult. On average, Google provides more functionality at the risk of overbearing complexity. 

Google has probably gotten the worst press on this last attribute, empathy. There is a long cemetery of services that Google has put to rest, mostly because they didn’t vibe with consumers. Most prominent such service was Google+, which was supposed to be a social network for Google users. It still exists, but Google has all but abandoned their quest for social. Many users are also increasingly wary of privacy and tracking, which goes against the nature of Google. Google makes money based on advertising, which itself requires user data. Google may understand that consumers value privacy on an intellectual level, but that does not change the company’s behavior in meaningful ways. Just as Apple thinks it knows design better than the consumer, Google believes openness is superior to privacy. There is no right or wrong here, there is only is and isn’t. 

Microsoft 

If you lived through the 1990s and 2000s with Microsoft products, you would know just how uninspired their design was. Nobody would ever call Windows XP beautiful (if one such person exists, direct them to me, and I will cover the eye doctor charges). That all changed with Windows 8 and the Metro interface, and has only been improving with Satya Nadella at Microsoft’s helm. The design may not be for everyone, but it’s undeniably opinionated and an improvement over prior Microsoft products. Microsoft began designing for consumers, not corporations. 

Microsoft products have always been strong in their functionality offering. I don’t think you will find a person in the world who knows every single Excel function and feature - the same can be said about nearly every Microsoft product. More than Google, Microsoft classically aimed to appease the needs of every user, even if it made the product more difficult to use. Lately though, Microsoft has begun to strip functionality away, catering to the 99%, abandoning the 1% power user. 

Microsoft has always understood the needs of enterprise users, but regular John Doe consumers were a mythical beast with unexplainable desires. Microsoft clearly understood the fundamental needs of corporations: collaboration, security and liability precautions, support, and product uniformity were all provided by Microsoft. These attributes, however, added almost nothing to ordinary consumers, who Microsoft all but abandoned. For this reason, Microsoft went down in history as being extremely empathetic to enterprise, and not at all to consumers. Full credit is again due to Microsoft for changing priorities so quickly. The new Microsoft is still enterprise friendly, but it now understands the need of consumers. Microsoft Office is available on every platform, it is free for practical purposes, and I dare to say that the apps are excellent. 

Coda 

Given the task of ranking Apple, Google, and Microsoft in these three attributes, I would define the following order. 

Design 

1) Apple

2) Google

3) Microsoft

Functionality 

1) Google/Microsoft

2) Apple

Empathy 

1) Apple

2) Microsoft

3) Google

Note that weights are not assigned to each attribute - not because the attribute doesn’t deserve a weight but because it requires further analysis (maybe in a later post). In other words, empathy may matter more than design, but how much more exactly is unknown to me at this time. We should also note that the rankings of each company changes through time. The above rankings are how I see the companies at the present time, not yesterday or tomorrow. 

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Feel free to comment and assign your own rankings in the comments section below. It would be interesting to compare what others think.

Microsoft and Cool

Growing up in the 1990's and the early 2000's, I recall Microsoft being the omnipresent company making Windows and thriving off its enterprise business. There was nothing remotely sexy about it. Even at a young age, I found the design of Microsoft's software to be stale and unimaginative, catering solely to function. Being raised in an immigrant family with little discretionary income, all I had to play with were old Windows PC's that were hand-me-downs from various friends and family members. My fascination with tech started with Windows NT, followed by Windows 95, Windows 98, and finally my last version, Windows XP. It was shortly before the release of Windows Vista that I had all but abandoned the Microsoft ecosystem, and turned to Apple.

There wasn't anything in particular that made me switch to Mac OS; it was a combination of many small deal-breakers that together made for a very frustrating Windows experience. First there was the bloatware that came preinstalled with practically every PC. Then there was the general disregard Microsoft had for aesthetic. Before I bought my first Mac, I never used OS X before, but I always found it to be more appealing from the screenshots I had seen. Moreover, Windows was never playful, and it always felt like it was made primarily to please enterprise. That's because it was.

Things began to improve with Windows 7, but it was the Windows 8 design language that finally made Microsoft value design and appeal. Although Windows 8 was a colossal failure, in my eyes it was what solidified the shift of Microsoft. I still do not know exactly where Microsoft is shifting, but it feels like the right direction.

If you've followed me on Twitter these last few weeks, you would know I called Microsoft out for its purchase of Accompli Mail and Sunrise Calendar. I have since changed my thinking. My mistake was in assuming that the goal of both purchases was to eventually turn a profit from these apps. This line of reasoning was reinforced by the constraints of my business school education: a company buys another company when it believes the return on that investment will exceed the return of the next best investment. You already know I'm a big fan of examples, so let me illustrate my previously faulty logic.

Let's say you own a company and have $1B of unused cash lying around. It would be foolish to keep it locked down at a bank, since the interest rate you would be earning would be negligible. Instead, you can invest it in the stock market and earn roughly a 10% return every year, or $100M. Alternatively, you can invest the $1B in the R&D of a potentially new product, which by your estimates will earn $500M in year 1, $800M in year 2, $1B in year 3, and $1.2B in perpetuity. Financial analysts would discount the cash flows of this potential project in year 1, 2, 3, and so forth, in order to calculate the total return of this product. If the return is greater than the original $1B investment, it may make sense to invest in this project. But what you really want is for the total return of this product to exceed the return of the next best investment, which is the $100M you would earn from the stock market. Of course, this example is a simplification of reality, but hopefully the point is made.

Using this logic, I assumed that the rumored price of $200M that Microsoft paid for Accompli, and the $100M they paid for Sunrise, that they would expect to earn a greater return than the cost of the investment. In other words, I implied that Microsoft believed that the $300M they spent on these acquisitions would provide a greater return than the cost. This thinking was largely incorrect.

It was incorrect because my assumptions were all wrong. I assumed that the goal of these acquisitions was for Microsoft to make money on them over the future years. After all, why would you spend millions of dollars on something that won't actually make you any money? Given this assumption, I reasoned that Microsoft will not actually make money on these products, since few people would be willing to spend money on an email or calendar app. Microsoft was paying millions of dollars for two apps that won't actually bring them any profit in!

For as much writing I do about the inability of spreadsheets to calculate the complete financial ramifications of a business, I still made the same mistake that many analysts do. In reality, Microsoft was investing not in the profitability of Accompli and Sunrise, but it was investing in the future of Microsoft.

Goodwill is what accountants and financial analysts use as a plug-in variable for everything they can't measure. It is fairly easy to asses how much the laptops, desks, and other equipment of the business are worth. The same goes for the liabilities of a business. But the worth of intangibles such as patents, logos, employees, brand recognition, and customer data is as close to the definition of guesswork as can be. We simply don't know how to put a concrete value on such touchy-feels things. There is no Craigslist for intangibles, and so we do not know their exact worth. What we do know is how much we are willing to pay for them. Accounting students spend a whole semester learning how to calculate goodwill on an acquisition, but in general terms the calculation is very basic. Goodwill = what you paid - what something is worth. If you paid more for the business than it is worth, you have goodwill. Congratulations - you now know more about goodwill than 99.99% of the population (and probably more than most accountants)!

Understanding the concept of goodwill, we can return back to Microsoft and its latest two acquisitions.

As I have alluded to earlier in this post, Microsoft was actually purchasing the intangible element of coolness when it acquired Accompli and Sunrise. Microsoft was also purchasing relevance, social, and trendy. Although it may seem insane for a company to spend hundreds of millions of dollars on such vague and immeasurable terms, these are actually investments that aim to convert Microsoft from being an enterprise dinosaur to a modern creature. Most of Microsoft's success in the past came from what its users did at work: Outlook for email, Microsoft Office for documents, SharePoint for collaboration, and Windows for the ecosystem. But when these users came home, they used consumer-grade products from Apple and Google since the user experience was better, and many features were free. As a result, Microsoft's blinding focus on enterprise lost many consumers to non-enterprise software.

Accompli and Sunrise are acquisitions to win back these non-enterprise users. Although Accompli is heavily geared toward productivity and scheduling, it is a well designed (but by no means perfect) app that also caters heavily to non-business users. By purchasing it, Microsoft was able to please enterprise users by offering them a great iOS mail application and please consumers by providing them with a great general email application.

Sunrise, a calendar app with social integration (Facebook, Foursquare, etc), is Microsoft's attempt to please consumers even further. Before the acquisition, Sunrise had millions of users. Now they belong to Microsoft. It is possible, of course, that Microsoft will lose these users through bad updates to the app, but I remain confident this will not occur.

So where exactly is Microsoft shifting - to consumers, enterprise, or both? My bet is on both, judging from the recent acquisitions. But what is most promising to see is the newfound focus on design and cool by Microsoft. For a company that never prioritized these two attributes, it is impressive to see them pivot so quickly. With both acquisitions, Microsoft purchased a huge cohort of younger users (like me) who have previously abandoned Microsoft products or have never used them before. If they don't mess up, there could be another generation of Microsoft users.

Microsoft Makes Office Free

This week, Microsoft did what was unthinkable just a year ago. It made its Office apps free for everyone (premium features still require an Office 365 subscription, but those features are for advanced users which most are not). This is important for the following reasons:

A. They needed to compete with free services from Apple and Google. While the document editing services of those competitors are getting better, Microsoft Office is still king. This move to make Office free just confirms it. 

B. Indoctrinate the young. Microsoft needed to get young people using their products from an early age, so that they may become lifelong Microsoft users. Without a free tier, these young users would be indoctrinated into Apple's and Google's ecosystems instead, which would be terrible for the future sales of Microsoft products. Hooking these young people early is an investment for the future, when they grow up and have disposable incomes to purchase other Microsoft products. 

C. Separate the consumer business from the enterprise business. Ben Thompson put it best:

On the consumer side, Microsoft hopes to make money from devices and advertising: they sell Surfaces, Lumias, and Xboxes with differentiated OS’s, hardware, and services, and they have ad-supported services like Bing and Outlook. The enterprise side is the exact opposite: here the focus is 100% on services, especially Azure and Office 365 (to use the Office iPad apps for business still requires a subscription).

Microsoft needed to clearly delineate its two major businesses - one aimed at consumers, and the other at enterprise. Offering the Office apps for free makes their consumer business stronger. In turn, these consumers will expect the same services from their employers (many large businesses already pay for Office 365, but this is about those who don't, such as small to medium sized companies).

Overall, this is an excellent move for Microsoft. As of this writing, Microsoft Word is third most downloaded app in the App Store. The investment has already started to pay off. 

A Smartphone in Every Pocket

"Our slogan from the very beginning was ‘A computer on every desk and in every home,'" said Bill Gates during the height of Microsoft's dominance. As many have noted, that goal has been achieved. It's been achieved years ago, in fact. Whether you were an early adopter, a late one, or even a Mac user, you've undoubtedly had to use a PC at least a few times a month, or more likely, every day. Windows has won, even Steve Jobs admitted to it. If the CEO of your key competitor says so, you know you've won. 

But now look what has happened. Windows computers are on the inevitable decline, year by year. The Surface tablet was an extremely costly public failure. To top it all off, Windows Phone never took off like it was planned to. Despite revenues still reaching record highs, it is clear that Microsoft is in an uncertain position, and management kerfuffles don't alleviate that worry. Microsoft needs the next big thing, a profit center that will lead it for the next decade. Given that smartphones have a market reach far greater than PC's, that should be Microsoft's core focus. Fortunately, they have all of the elements to succeed; it just amazes me that they don't see them.

Here's what I would do to revive the company if I were Satya Nadella.

• Make a Windows Phone. Nothing bad was ever said about the quality of the Surface. In fact, reviewers said that it had fantastic build quality. Now that Microsoft owns Nokia, who rivals Apple in hardware design, making a beautiful Windows Phone should not be a problem. 
• Bundle Free Services. Microsoft has Outlook, OneDrive, Skype, Office, a music store, a video store, and an app store. That's an ecosystem that is far more comprehensive than Apple's. Microsoft's core competition in services is actually Google. Here's how I would tackle this. Google has the reputation for being open and public, which rubs many users the wrong way. Microsoft should take the Apple approach and preach data privacy and the highest level of integrity. Moreover, make all those services free for Windows Phone users. Free calling and texting with Skype, free email with Outlook, free cloud storage with OneDrive, free Office apps. Hell, even make music streaming free for a certain number of hours per month. Right now, the main thing stopping consumers from purchasing Windows Phone devices is the lack of apps. Offering all of these services for free would compensate for that app shortage and would undoubtedly bring many new users to the platform. And developers follow the users. Note that making all of these services totally free for Windows Phone users will be an extremely expensive short term decision, but in the long term it will pay off. 
• Platform Lock In. Apps don't lock in users, but ecosystem services do. I can switch easily from an iPhone to an Android phone and back, because apps like Twitter, Facebook, and WhatsApp are platform agnostic. They offer essentially the same content on all devices. Photo storage, playlist preferences, and documents in the cloud, however, are all things that keep users locked in to your platform. Give iPhone and Android users a compelling reason to switch to Windows Phone with the bundled services above, and keep them glued to it. For example, offer a service that automatically backs up all user photo's in the cloud, give them unlimited storage (unlike Apple, which provides a limited amount for backups), and let them access those photo's online and share them with friends and family. When people are given a compelling free service, they use it. When they use it, they are locked in to the platform. Who would want to switch platforms when they have thousands of photo's saved in OneDrive? That's right...nobody. 

There's one last thing I would do as CEO, that's that marketing the Microsoft ecosystem. Show people why they should switch, and how many free services they get from doing so. Users love free stuff, and Microsoft needs users. Give them what they want, and you will receive them. 

The Birth Of A Fanboy

Note: I originally wrote this post on my previous blog, which has since been deprecated. To my surprise, the post became a hit, and The Tech Block contacted me to publish it, which you can find here. I am adding it to this site because this is where it belongs, as this is the place I will be doing my writing from now on. With that said, here's the piece below. 

How exactly does one become a fanboy? To understand how this transformation happens, let’s begin with the birth of a fanboy. 

Birth

A fanboy for company X isn’t born a fanboy for company X. Nobody loves Apple just because Apple exists. They have come to love it for various reasons. The products, the actions, the values - all of these things make a person align themselves with a company. And there’s nothing wrong with that. What’s wrong, however, is when that company is no longer what it used to be, and yet you still see it for its past behaviors. You staunchly defend it from criticisms even though you subconsciously know that the critics are at-least partially right.  

Let’s get back to the birth of a fanboy. You’re new to tech, so you don’t have a favorite company…yet. You read various blogs; The Verge, Engadget, CNET for comprehensive coverage of all things technology. Google news, Apple news, Microsoft news, you absorb it all, but you still don’t have a favorite company. Until you buy your first iPhone. Now you’re invested in Apple. Apple’s success is now your success, Apple’s failure is your failure. But why? 

First, you want more people to buy iPhones after having bought one yourself. If Apple keeps making money, the iPhone you own will keep getting updated. Apple will see the demand for it, and they will focus their attention on the product you own. You know that, so you tell all your friends how great your iPhone is. But you hate some aspect of the phone, such as the fact that you can’t set a default browser such as Chrome. Guess what though? You leave that part out from your friends because you want them to buy an iPhone, and that little quirk can make them purchase an Android phone instead. And you don’t want that because that means more people buy Android, and thus less iPhones, and even further, that Apple makes less money. “What if so few people purchase iPhones that Apple eventually stops development for it" you ask yourself. That would also mean less developers are incentivized to create apps for you. Finally, you’re left with an abandoned phone without applications!

Not only does that leave you with an abandoned phone, but it also means that you made the incorrect phone choice. You made a bad decision, and you were wrong. Nobody wants to be wrong.

Every rational human being thinks in that way. Nobody wants to end up with a forsaken phone on a dead operating system, so they glamorize the phone they own. People who don’t own that phone, or who don’t have a vested interest in the success of company X will write terrible reviews about the product. They will criticize the faults, features it’s missing, and other qualities of the phone. 

So to defend your investment, you post comments that we categorize as “fanboyish". You try to dismiss these criticisms because, even though you know they are correct, they decrease the value of your investment. And there you go, a fanboy is born.