I love decompiling other people's business strategies.
This morning as I picked up my morning coffee and walked past Waterstones, I noticed a prominently positioned board outside the bookshop proclaiming 'CHECK OUT OUR KINDLES!".
This was all the invitation I needed to try understand why a bookshop would be so brazenly sewing the seeds of its own demise. My first conclusion was that it was a hopelessly short term strategy to cash in on demand for Kindles, regardless of the longer term, somewhat suicidally negative impact that the promotion of e-books would have on a traditional bookshop. But I then reckoned that Waterstones management might be daft, but not that daft.
So, it had to be something else, some sliver of logic must be behind what on the surface seemed like a crazy thing for a bookshop to do.
My best guess is this:
- Amazon is probably able to associate a unique device id to Kindles sold by Watersones which can be used to then calculate a commission payable to Waterstones from subsequent e-book purchases on that Kindle device, or from that user. It makes sense for Amazon to promote Kindles to book buying people rather than have them buy Nooks, Kobos or iBooks for their iPads. And people who buy books go to Waterstones.
- There exists no doubt a demographic of people (probably young digital natives) who would never think of buying a paper book and would only buy e-books and so therefore will never become Waterstones customers, ergo the tiny cut Waterstones might get from associated Amazon Kindle e-book from these people sales therefore is net net incremental revenue for Waterstones.
- Ultimately everyone is moving to e-books (apart from the same kinds of people who still by vinyl records) and so rather than lose those those customers in future to Amazon, Waterstones gets to retain some revenue relationship with them by selling them a Kindle and getting a cut from future e-book purchases.
- But, ultimately, I couldn't see a long term survival strategy for Waterstones, and I doubt the commission from Kindle e-book sales will ever be enough to fund a national chain of retail stores for the minority of paper book buyers in ten or fifteen years.
- So, it's a transitional play, not suicide. In one sense they're acquiescing but in a way that guarantees some form of future revenue, depending on how well Waterstones negotiated and the resulting commission cut and the term over which they'll receive a commission from Amazon for e-book sales on each Kindle they sell.
Windows 8 is getting patchy reviews on account of:
- Some of the new UI conventions supposedly hamper productivity.
- There's also talk of unspectacular sales.
- And Microsoft just reportedly shitcanned the Windows dev team's representative on earth, Steven Sinofsky.
It's easy to draw interesting conclusions, not all of which are straightforward.
- Windows 8 is a strategic mis-step of Windows Vista proportions.
- Windows 8 is a strategic masterstroke.
Let's give Microsoft some credit and take scenario 2.
It's only 3 years since Windows 7 heroically arrived to clean up the mess that was Windows Vista. Windows 7 has been regarded as a success, but Vista wasn't exactly a hard act to follow. It's also worth noting that since Windows 7 shipped, we've gotten all gooey-eyed about touch interfaces. Something Microsoft couldn't ignore when planning its long term Windows roadmap, and how it plans to compete with Apple & Google.
So, enter stage left much earlier than a regular Windows replacement cycle would imply (and since when did operating systems ever ship early?) Windows 8 which for my argument to stack up is really just a big Windows 7 Service Pack or, approximately Windows 7 Touch Edition. (The UI is the only thing people are talking about, I might have missed if Windows 8 had anything else material that was new over Windows 7, but even if it does the UI change is obscuring it.)
Most corporates and public sector Windows customers have probably just finished refreshing Windows XP deployments to Windows 7 and are therefore probably likely to skip a generation and wait for Windows 9. So, what better way to begin the transition to Touch and tablet devices than with a big point release of Windows 7 where you road-test and begin to habituate users to a different Windows experience.
If they'd badged Windows 8 as Windows 7 Touch Edition then they'd have missed the opportunity to drive PC hardware refreshes (as hardware really drives sales of Windows) which helps Microsoft and PC manufacturer sales, and the Surface hardware would have looked weirdly out on a limb all of its own without its desktop sibling wearing a matching pair of pyjamas.
So, by the time they've ironed out all the wrinkles on undemanding consumer users for whom Windows 8's Metro UI is probably just about bearable, they can go for a big push on Windows 9, the real next new generation of Windows and the second iteration of some of their touch conventions in time for a business refresh cycle around 2015.
If that's the case, Microsoft's Windows 8 product marketing strategy is either utter genius or utter insanity.
Note : I was at Microsoft until 2009, but not in the Windows business and I haven't spoken with anyone at Microsoft in arriving at this supposition. I've been hypothesizing on here about Microsoft for eons.
I've been thinking about market models lately, and recalled an illustration I came up with about eight years ago which I used to describe the dynamics of how business software was sold differently to discrete categories of business size.
So, I redrew it below. The theory went along the lines of:
Small businesses have low complexity but high price sensitivity / low purchasing power, large businesses have very high complexity and comparatively low price sensitivity / high purchasing power. Mid-sized businesses are the problem children with high complexity and but still high price sensitivity. Business complexity is also a pretty good proxy for cost of sale.
Small and Large category customers tended to have direct relationships with software vendors (for different reasons) but mid-sized businesses were forced to deal with intermediaries like resellers, specialists or niche vendors / integrators. It also explains why small business software vendors never grow upstream, and vice versa - the cultural and go-to-market model differences are too profound.
I've not yet re-worked this model for cloud apps, but it will be interesting to see what (if any) changes emerge.
Click for big.
It's interesting to see how the 12-24 month replacement cycles chosen by most iPhone users now sets the rythm of the business for Apple and forces it to work to releasing software against date driven deadlines rather than quality / completeness based ship cycles.
The iOS 6 Maps debacle and Forstall's resulting exit being a great case in point, and shows how much of a slave to its own success Apple has become. The iPhone business is a monster that insists on an annual refresh and whose scale in revenue terms makes it very risky to change too much for fear of hampering appeal and shortly thereafter a significant double digit percentage of Apple's annual revenues.