As the saying goes, history repeats itself. In 1997, Steve Jobs announced Microsoft Office for Macintosh and supposedly ended the longstanding rivalry between the two companies. But then came mobile technology and there was no Office for Apple and no mobile for Microsoft.
In 2014, as the third CEO of Microsoft, one of the first big announcements Satya Nadella made was Office for iPad. The two companies’ have shared origins and, historically, some similar approaches to the market, but have they diverged far when it comes to mobility.
Apple CEO Tim Cook and Nadella mentioned each other’s companies on last week’s earnings calls and the continuing differences were underscored—as Apple nearly dominates the smartphone market, but Microsoft’s Windows Phone stands to grow the fastest among the leading smartphone OSes according to IDC, and could also benefit from the slowdown in iPad sales.
Apple Sets Record…Again
Revenue for the March quarter was $45.6 billion, up $2 billion or 5% from a year ago and above the guidance range, said Cook on the April 23 earnings call. This represented a new March quarter record, and the company’s strongest non-holiday quarter ever.
iPhone was key in driving the stronger-than-expected results, according to Cook. “We sold 43.7 million iPhones, which was a March quarter record. That’s an increase of 6.3 million iPhones over last year that represents 17% growth.”
Examples of this in the enterprise market include Deutsche Bank with nearly 20,000 iPhones running on its network. It has also created 40 internal apps that extend the capabilities of its mobile workforce.
Siemens has 30,000 iPhones on its network and has deployed over 50 internal apps for field service teams, sales associates and corporate executives. “We are really happy with the continued growth and strength of the Apple ecosystem,” said Luca Maestri, Vice President of Finance and Corporate Controller, Apple.
iPad sales came in at the high end of Apple’s expectations, but below analyst estimates. Cook explained, “We believe almost all of the difference can be explained by two factors. First, in the March quarter last year, we significantly increased iPad channel inventory, while this year we significantly reduced it. Second, we ended the December quarter last year with a substantial backlog with the iPad mini that was subsequently shipped in the March quarter, whereas we ended the December quarter this year near supply demand balance. We continue to believe that the tablet market will surpass the PC market in size within the next few years and we believe that Apple will be a major beneficiary of this trend.”
iPads in action include thousands used at FedEx, and Eli Lilly has deployed over 20,000 and 50 internal apps as part of a laptop replacement program. The U.S. Department of Veterans Affairs is on its way to deploying iPads to 11,000 providers to transform the way doctors and patients interact. According to the latest data published by IDC, iPad has over 95% share of the U.S. education tablet market as well.
Cook said, “It [iPad] absolutely has been the fastest growing product in Apple’s history and it’s been the only product that we’ve ever made that was instantly a hit in three of our key markets, from consumer to business, including the enterprise and education.”
In fact, in four years after the first iPad was launched, 210 million have been sold, which is almost twice as many iPhones that sold in a comparable period of time. “We’ve come a long way very, very quickly,” said Cook.
Office Produces for Enterprise
Qualifying his compliment to Microsoft before offering it, Cook pointed out that there are lots of alternatives for productivity; some of which were brought to the market by Apple, some by other “innovative” companies.
“But I do see that Office is still a very key franchise in the enterprise, in particular. And I think having it on iPad is good, and I wholeheartedly welcome Microsoft to the App Store to sell Office. Our customers are clearly responding in a good way that it’s available. So, I do think it helps us particularly in the enterprise area,” he said.
Cook is never definitive about new products and won’t talk about what is “behind the curtain,” but always ensures the audience that they will be very exciting indeed. What’ s most important to him, “is to stay focused on things that we can do best and that we can perform at a really high-level of quality that our customers have come to expect.”
Caring about every detail and getting it right takes a bit longer, he said, and noted, “We didn't ship the first MP3 player, nor the first smartphone, nor the first tablet. In fact, there were tablets being shipped a decade or so before then, but arguably, we shipped the first successful modern tablet, the first successful modern smartphone and the first successful modern MP3 player. And so it means much more to us to get it right, than to be first.”
Apple has been noticeably behind in the area of wearables, so perhaps the comment was also a subtle disclaimer to that, but it was not an area he specifically mentioned. Plus, the competition has never seemed to bothered Cook, at least not on these calls of late.
When it comes to the rest of the market, he pointed out the many moving parts, many acquisitions and many who are giving up and moving on to other things. “But at the end of the day, we see it much like we've always seen it, as the part of the market that we're interested in and the people who really want the best…” he said.
From Cupertino to Redmond
Microsoft reported on April 24, a total revenue of $20.4 billion, up 8%, and earnings per share grew 5%. This was Nadella’s first call and he laid out the path to a broad strategy, which, unlike Apple, is defined by a few words more than “focus.” But like Apple, at the core of Microsoft’s strategy is mobile.
His opening remarks included, “This is the mobile-first and cloud-first world. It’s a rich canvas for innovation and a great growth opportunity for Microsoft across all our customer segments.” And the framework for the company’s approach is planning and executing “on a continuous basis.”
In defining mobile-first, Nadella clarified that it is mobility first. “We think about users and their experiences spanning a variety of devices. So it’s not about any one form factor that may have some share position today, but as we look to the future, what are the set of experiences across devices, some ours and some not ours, that we can power through experiences and that we can create uniquely.”
This necessitates a deep understanding of all the mobile scenarios and will require the company to build new capabilities. “We will do some of this organically, some of it inorganically. A good example of this is what we have done with Nokia,” he explained.
Perhaps borrowing a line from Apple, Nadella also said, “We want to build products that people love to use.”
In reorienting Microsoft, they are advancing Office, Windows and the data platform and how they think holistically about the constituencies served—IT, developers and people at the center in a mobile first cloud, first world.
Nadella reiterated a commitment to cloud services across all device platforms and spoke of “bold plans” to move Windows forward. “We are investing and innovating in every dimension from form-factor to software experiences to price. Windows platform is unique in how it brings together consistent end user experiences across small to large screens, broadest platform opportunity for developers and control and assurance for IT,” he said.
The plans include adding more value, more management and more security that comes with BYOD, for example, and emerging opportunities like wearables and the Internet of Things.
Foundation for the Future
Nadella called Office 365 “the core engine that’s driving a lot of our cloud adoption.” He also sees it as an architecture for enterprises, and along with the announcement of Office 365 app for iPad, the most “salient” news so far was the launch of the enterprise mobility suite. “We now have a consistent and deep platform for identity management—which by the way gets bootstrapped every time Office 365 users sign up—device management and data protection, which is really what every enterprise customer needs in a mobile-first world.”
He did not speak of the competition or talk about the pipeline “behind the curtain,” but in looking ahead, he personalized the company a bit saying, “What you can expect of Microsoft is courage in the face of reality. We will approach our future with a challenger mindset. We will be bold in our innovation.”
Yankee Group VP of Research Carl Howe offered this analysis, “Given that the ink is barely dry on his new CEO business cards, I think it’s way too early to start judging Nadella’s performance based on Microsoft earnings reports...I don’t expect to see business evidence of Microsoft’s new direction for at least a year, and maybe more. What I do give Nadella high marks for, though, is his willingness to say, ‘Microsoft will now do things differently.’ We saw that in his willingness to release Microsoft Office for iPad, which is a product that never would have seen the light of day in the Windows Everywhere era. He also is putting a somewhat more human face on the company by admitting that the firm has made missteps and missed market opportunities.”