The Real Threat of a Mac & Virtualization

The Back Story

Okay, there should be no doubt in anyone's mind that I enjoy commenting on Apple's business strategy, marketing practices and products. You would think that I am guilty of heresy considering I work for Microsoft. Well, I lived with that burden for a few years until I found an entire "underground" community of fellow Mac enthusiasts at Microsoft - they're aptly called "the Mac Users Group". That an enthusiast group for a rival's products can exist at Microsoft should tell you something about the openness of this company. But I digress...

There is no denying that people, not just geeks, are simply enamored with the new Mac Laptops. There are unofficial numbers indicating the Mac's market share at a strong 21% of the Consumer market, and that number is trending on the up. Within Microsoft too, I've witnessed a steady increase in the number of my Microsoft cohorts requesting help with setting up their new MacBook Pro, more people extolling the virtues of Mac OS X. Till last year, these folks (and employees of other corporations) had to contend with owning two machines - while their Mac catered to activities in their down-time, they had to revert to their Windows machine for work-related commitments. They say, "Perception is everything", and this clear distinction between a Mac and a PC led to the Mac being dubbed a Hobbyist platform. Not very flattering if you ask me.

Virtualization - What?

The perception of what a Mac could do changed with the release of Mac OS 10.4, codenamed Tiger. A small company in Renton, WA released a virtualization solution for the Mac called Parallels that allowed users to run Windows in "parallel" to Mac OS X. Via virtualization, you can run Windows-only applications and games on a Mac. That's right - you can run Windows-only applications and games on a Mac via virtualization!

Parallels wasn't the first virtualization solution for the Mac - the other virtualization solution for the Mac was Virtual PC, an abysmally slow product and was taken off the shelves a few years after Microsoft acquired Virtual PC. Windows on a Mac via Parallels didn't run at breakneck speed, but for the first time, owning a Mac didn't come with the associated burden of owning a Windows PC in order to get work done.

In Fall 2007, Apple released the next version of their operating system - Mac OS 10.5, codenamed Leopard. A heralded feature of Leopard was Spaces, a feature that Unix desktops have had for as long as I can remember. Spaces is a way to organize currently opened applications into multiple desktops, and is touted to boost productivity. In my case, I tend to switch between 2 sets of applications that I would organize into 2 Spaces (if I had a Mac at work):
- a Work space with all the work related applications - Outlook, gVIM, Visio and Powerpoint
- a Personal space containing Firefox, Photoshop, Live Writer, etc

As Mac OS X started gaining momentum, the Parallels product for the Mac gained in popularity. VMWare, a big player in the Virtualization space, recognized that Parallels was on to something, and created a rival product called Fusion. VMWare's entry into this market was good news for everyone - it legitimized both the Mac platform and Parallels, it created competition for the incumbent product which made both products better, and it gave Mac owners a choice of virtualization software. The reviews are in for both products, and it's only good news. Barring the minor performance issues people have noticed, they are extremely happy with their Mac purchase, with Mac OSX, and with running Windows via Parallels or Fusion.

What's good for Apple is bad for Microsoft

I've talked about Mac OS X, Spaces, and the freedom customers now have to both work and play on their Macs via Virtualization and Leopard. The marriage of these ideas is what occurred to me last afternoon as I walked out of the office. Here's the scenario that prompted this post:

Roy works at a company that has made extensive IT investments in Microsoft technologies like Exchange and SQL. At work, Roy needs to use products that only work on Windows like Visual Studio and Visio. As his work demands more travel, Roy is given the option of buying either a Mac or a Dell/Lenovo laptop.

Till last year, Roy would almost certainly pick either Dell or Lenovo. Today, Apple is the other horse in this race, and unlike the other two, evokes a visceral response in its owners like no other technology product. If Roy chooses a Mac, he can set his computer up using Spaces so that his Work space has all his Windows-only applications running in, you got it right, a Fusion/Parallels powered Virtual Machine, and his Personal space can be powered by applications that are running natively on the Mac. Switching between the 2 completely disparate environments, hitherto impossible, is now akin to switching between applications via Alt+Tab (it's a different key combination but you get my point). Totally seamless!

The increasing market share of the Mac has 2 distinct repercussions on the Windows business:

1. OS Upgrades
The customer satisfaction numbers for Vista aren't pretty; under pressure from customers, Dell has restarted selling machines preloaded with Windows XP. All the line of business applications that run on Vista also run on Windows XP, so a lot of businesses don't see the need to upgrade to Vista. Adding insult to injury is the fact that Windows XP is cheaper to purchase than Vista is. As a corporate employee that owns a Mac, this tells me that I can continue using Windows XP installed in a Virtual Machine to get my work done.

2. OEM Sales and Windows Volume Licensing
Microsoft makes most of its money selling Windows to OEMs. The new PC you bought with Windows preinstalled sent some more money into Microsoft's coffers. Microsoft gets no money when a Mac is bought, so its bottom-line is affected every time a customer (consumer or corporate) decides to buy a Mac instead of a PC.

It could just be that Microsoft's losses on account of Mac's gains are but a drop in the ocean. Please feel free to drop me a line or post a comment if you have more insight into this.

Microsoft's Acquisition of Danger Inc.

:Link to Article:

I read in the news yesterday that Microsoft has begun talks to acquire the maker of the Software platform that powers, among a bunch of devices, the T-Mobile Sidekick. I should have expected an acquisition along these lines; Microsoft's strategy over the last couple years has been to increase revenues via acquisition, not in-house innovation. Rather than dismiss this as an inevitable acquisition, I began thinking along a different tack - what's to become of the Sidekick 3 now that Danger is going to be a Microsoft company?

There is no doubt that Danger will continue to innovate under its new management, but it remains to be seen whether the eco-system that depends on Danger's s/w platform will continue to the latest and greatest s/w bundles from Danger. There is a possibility that Danger does some work exclusively for Microsoft; some of its work might be leveraged by the Windows Mobile team to improve the platform. Or the acquisition can go sour, and Danger will flounder under Microsoft. What gives me hope is the counter-example of an acquired company that thrived after merging with Microsoft. That counter-example is Bungie, a case in point of a team of individuals that worked wonders while under the Microsoft umbrella.

We might be headed into a new M&A path at Microsoft - the Juggernaut acquires a company yet lets it operate independently but under the auspices of the larger corporation. The guaranteed flow of capital investment spurs the newly acquired entity to innovate with renewed vigor, and Microsoft peppers the fruits of the new entity's labors in product lines that can directly benefit from the work. The rumor mills are rife with talk of Microsoft finally realizing that in order to succeed in niche consumer markets, it's not sufficient to have just a s/w platform strategy. The $$ lie in marrying cool software ideas with an appealing hardware device; a device with both h/w and s/w merits brings in not only revenues but invaluable mind-share. The Microsoft brand is already gaining traction in the consumer market via the successful launches of the X-Box and Zune. It remains to be seen if the company seizes this opportunity to make further inroads into the consumer electronics market, which at this point is ruled by Sony and Apple.

To quote the article:

Terms of the purchase were not disclosed. The founders of Danger previously worked at Apple as engineers before leaving to found the company. Some see this is a response to the Apple's recent success:

Tim Bajarin, president of Creative Strategies of Campbell, said the acquisition provides further evidence that Microsoft is mirroring the thinking of Apple, which has married software and hardware to make simple, fashionable consumer products like the iPod and iPhone.

"Sometime in the last two years Microsoft fundamentally woke up and realized that even though they're a software company, they had to use hardware to control their destiny"

Stay tuned...

What Microsoft needs is Focus

:Link to Article:

I couldn't agree more with this paragraph from an opinion piece in the latest Businessweek.

"Had Microsoft kept its focus on its core business, this might not have happened. Instead, your efforts on the Web have tended to focus more on bending the Web to your will than making your software enhance it.

Take Microsoft Office. If someone took it away from me, I could get by using a Web-based office suite like Google Docs and Spreadsheets, or Zoho and others like it. You should have had Office on the Web five years ago. Meanwhile, as Web-based upstarts were quietly invading this turf, you've been wasting time, effort, and attention trying to be a consumer electronics company, a digital media company, and now an online advertising company. Before long you'll probably want to sell me telephone and TV service, too. Enough with the identity crisis! Microsoft is a software company. Everything else is superfluous."

I wonder if the Steve that needs to listen is listening, or watching the other Steve that has taken his company to new heights. The only common trait of both Steves - they are both going to leave an indelible mark on the individual companies they spearhead. To continue quoting the article (it's very well written by the way)

Buy It and Spin It Off

It all sounds very misguided, how you say that by spending all that money on Yahoo you can grow so much bigger, when what you really need is to be smaller.

But since it's clear that I'm not going to change your mind about buying Yahoo, here's what you should do: Once you close the deal, package Yahoo with your online services division, the entertainment and devices division (yes, the Xbox, too), and spin the whole thing off.

Remember that bit about focus? This would help you get it back. Put all those things that Microsoft isn't very good at, put them in a box with Yahoo and cut the apron strings. Sure, keep an equity stake, even a majority. But this formidable new entity would function best outside the Windows-centric reservation. If this new company's plans don't coincide perfectly with some future set of features coming to Windows, so be it.

The alternative, if you force these businesses to fester within Microsoft, is that these businesses will always play second fiddle to Windows—and fail to meet their potential.

This new entity is going to have to be nimble to compete with Google, Facebook, and probably one, two, or five other companies we haven't heard of yet. With luck you'll have enough time to whip the whole thing into fighting shape before it's too late. That's assuming it's not too late already.