Bill Gates on Flat World

It was an argument he says he made to Thomas Friedman as The New York Times columnist was writing his 2005 book, The World is Flat, a work that came to define the almost end-of-history optimism that accompanied the entry of China and India into the global labour markets, a transition aided by the internet revolution. “Fine, go to those Bangalore Infosys centres, but just for the hell of it go three miles aside and go look at the guy living with no toilet, no running water,” Gates says now. “The world is not flat and PCs are not, in the hierarchy of human needs, in the first five rungs.”

From An exclusive interview with Bill Gates


Why getting acquired made sense to Nokia

So far every analysis I have read on Nokia's acqusition by Micorsoft, almost all have commented it from Microsoft's point of view. A few like it and many don't. But one thing consistent in all these views is the lack of Nokia's perspective to getting acquired.

We all know Nokia has struggled mightly in the recent past, their feature phone and smartphone business taking a dive and only recently seeing some buzz around Lumia line of Windows Phone Samrtphones. The devices and services division of Nokia is a loss making one.

In the second quarter of this year, Nokia's Devices and Services division's operating loss was €33M. The margin in Devices and Services was -1.2% (up from from -11.8% in Q2 2012). Total Lumia smartphone device sales were 7.4M (up from 6.1M in Q1), while mobile phone volumes were 53.7M (down from 55.8M in Q1 and down 27% y-on-y). We did see some strong performance from Nokia Solutions and Networks (erstwhile Nokia Siemens) which prompted Nokia to buy Siemens share this quarter. HERE also did well in Q2 achieving Q2 operating margin of 3.4% exceeding analysts expectation. This along with the fact Nokia's cash position has been declining made perfect sense to go with this deal.

Bernstein recently reiterating an underperform rating for Nokia asserted that company’s balance sheet, excluding the portion tied to the Nokia-Siemens Networks joint venture that sells telecom equipment, is “in a rather tight net cash position".

From a recent market cap of €10.7bn, we believe investors should take between a positive €0.5bn and a negative €1.8bn of “real” net cash, into account, then €3bn for Nokia’s share in NSN and €2.2bn for Nokia’s IP portfolio. This leaves us with €5bn to €7.3bn for the handset business excluding IP revenues. This is 0.4x to 0.6x times sales for a business in great difficulties, with revenues on a 30% p.a. decline trend, a P&L in deep losses, exposed to a disappearing Feature Phone market and struggling to make a dent in an ultra competitive Smartphone market. It appears to us largely too expensive. As a comparison point, when Google acquired Motorola Mobility, a Sum-of-the-Part analysis shows the handset business without patents was valued a negative $850m (~ negative €650m). For Nokia, taking no net cash into account, our price target would imply a €400m value for handsets alone.

This is a primary reason you see an unconditional loan from Microsoft to Nokia for €1.5B regardless if deal closes or not.

So from Nokia's perspective it was very clear, give away its loss making units at a very comfortable price and till the deal closes get some cash infusion to get the oeprations going. And once everything settles down, focus on it's Telecom business and HERE services which are profitable and making good strides in the recent times.

If you are a Nokia stockholder, I would say, go long.

Microsoft reorg - It's about Increasing Margins in short term with a long term view on Innovation

So much is being written about Microsoft reorg that was announced last week. Read the details of the reorg here. Essentially Microsoft is aligning across four major divisions, Cloud, OS, Devices and Apps with each division headed by an EVP. The supporting functions of Marketing, Advertising, HR, Legal, Finance etc will also be headed by an EVP. You can read some great insights on the reorg here:

Sometime back Steven Sinofsky, ex-President of Windows division of Microsoft wrote about reorgs. To the point of why reorgs, he writes:

Reorgs are typically instituted for a pretty common set of reasons, some of which on their own can cause people to retreat to a defensive or cynical state of mind.  Some common drivers include:

Resource efficiency. The role of management is to effectively allocate resources and in fact is really often the only tool management has. As a product and team evolve, resource allocations that seemed perfect at one point can seem less than optimal. An organization change has the potential to allocate resources more effectively towards the problems as they are today. Duplication of efforts. In any organization of size, over time efforts will start to converge or overlap. This is especially true in technology companies. This can be at a very visible level, for example if many groups are working on basic tools for editing photos or user names. This can also be at an infrastructure level such as how many teams have people buying servers or running labs.

Individual bandwidth. Sometimes teams or responsibility grow and the management of the work becomes too challenging or individuals are spread across multiple projects too frequently. Managers at any level can systematically have too many direct reports, for example. Alternatively, the product line can change or evolve over time and folks on the team find themselves context switching between somewhat unrelated projects more than actually managing. This lack of bandwidth becomes a problem for the team overall as everyone evolves to having more overhead than work.

Structural challenges. Organizations evolve over time in a way that suits the time, problem space, and skills. Sometimes when you take a step back, the current state ends up being suboptimal going forward. The alignment of resources, decision making, even core roles and responsibilities are not yielding the results. More often than not, this type organizational pain is felt broadly by the team or by customers.

Synergy / Strategy. The notion of increased synergy or strategic change generally drives the most challenging of org changes. Many are familiar with these challenges-—the effort to move large blocks of work in sort of an architectural view. Motivation is this sort often is about “proximity” or “relationship” and has the feel of architecting a product except it is about the team that builds the product.  There’s a tendency to create “portfolios” of products and teams when organizing along these lines.

Alignment.  Alignment is slightly different than synergy/strategy in that it speaks to how the organization should be viewed moving forward.  A long time ago, for example, the Office team at Microsoft shifted from building Office “apps” to building the Office “suite”.  Alignment also could include many mechanical elements of businesses/products like customer definition, business models, ship dates, and so on.

This is exactly the reason Microsoft reorganized themselves. This is a great idea and means two things to me more than anything else:

  1. Increase in Innovation - A well-aligned Microsoft will mean more focus on combined strategy with structural challenges removed. This should spur greater innovation with boundaries clearly defined (though boundaries often blur as time progresses). Each division owner in the new org will have more flexibility to choose what features make way into the OS, how these are structured for e.g. OS under one division could result in single code base for all devices that come out, resulting in more focus, less marketing and support costs.
  2. Margin Improvement - I haven't seen many people talking about Margin improvements which will definitely increase with the kind of reorg Microsoft has undertaken. Consider Windows, Windows Phone and erstwhile XBOX Division, all were making software and/or devices and I am sure that all of them had their own platform for code storage, testing and development etc. This reorg by putting all OS work under one division will reduce the duplication of efforts and increase resource efficiency. This will also mean reduction in training costs and greater movements for employees across the org leading to greater employee satisfaction and thus retention. All these efforts will directly impact margin in positive manner.

In short term, I see this reorg positively impacting the Margins of the company and in long term the margins are aided by the greater innovations this reorg can bring in. The most complex and interesting thing now is how Microsoft lands this reorg which is always most difficult thing to do. Please note, Microsoft is no stranger to reorgs. Again read this great essay by Steven Sinofsky on what not to do when landing reorgs.

Judge rules Apple conspired to raise prices on e-books

In a sweeping rejection of Apple Inc's strategy for selling electronic books on the Internet, a federal judge ruled that the company conspired with five major publishers to raise e-book prices.

U.S. District Judge Denise Cote in Manhattan found "compelling evidence" that Apple violated federal antitrust law by playing a "central role" in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices.


The article by Verge provides a lot few quotes by Steve Jobs and evidence posted by Publishers on the said collusion led by Apple to raise prices.


Windows 8 at 6 months: 100 Million strong

We recently surpassed the 100 million licenses sold mark for Windows 8. This number includes Windows licenses that ship on a new tablet or PC, as well as upgrades to Windows 8. This is up from the 60 million license number we provided in January. We’ve also seen the number of certified devices for Windows 8 and Window RT grow to 2,400 devices, and we’re seeing more and more touch devices in the mix.

As we talked about in our last Q&A, Windows 8 is a big, ambitious change. While we realize that change takes time, we feel good about the progress since launch, including what we’ve been able to accomplish with the ecosystem and customer reaction to the new PCs and tablets that are available now or will soon come to market.


Bill Gates on Flying Cars

Wired: Peter Thiel, expressing his dissatisfaction with technology’s progress, recently noted, “We wanted flying cars, instead we got 140 characters.” Do you agree with him?

Bill Gates: I feel sorry for Peter Thiel. Did he really want flying cars? Flying cars are not a very efficient way to move things from one point to another. On the other hand, 20 years ago we had the idea that information could become available at your fingertips. We got that done. Now everyone takes it for granted that you can look up movie reviews, track locations, and order stuff online. I wish there was a way we could take it away from people for a day so they could remember what it was like without it.



"Twitter will outlast the New York Times"

In a debate with Andreessen at the Milken Institute Global Conference Monday, Thiel, a co-founder of PayPal, said he expects that Twitter's roughly 1,000 employees will have jobs a decade from now.

The business case for Twitter is solid, Thiel said. He contrasted the future of Twitter with that of The New York Times, a print media vanguard that he says is not guaranteed a future in the digital age. Employees of the paper, Thiel cautioned, should be worried about the longevity of their jobs.

 Sign of the times.


Netflix's House of Cards strategy working

As predicted, Hastings doesn’t offer any real numbers for “House of Cards,” the company’s much-hyped foray into original productions. But he does take credit for building big buzz with “House of Cards” via its decision to release all 13 episodes at once. If Netflix had followed a standard release schedule, you’d be watching the last episode of the series this week, and presumably more people you know would be talking about the show right now. But Hastings says the big bang worked just fine: It ended up “reinforcing our brand attribute of giving consumers complete control over how and when they enjoy their entertainment.”

One House of Cards only good for one quarter, need more such originals to sustain the momentum.


Surface saves the quarter for Microsoft

Surface sells for a much higher average price than the OEM version of Windows -- it retails for anywhere between $499 (for the lower-powered Surface RT) and $999 (for the highest-end Pro version), and that's not including the keyboard/cover. 

Let's assume that Microsoft leaves a reasonable margin for its retail partners, including its own stores. Some analyst estimates put Surface Pro sales around 400,000 for the quarter, and Surface RT sales at maybe 200,000. Let's say that Microsoft collects an average of $700 per unit, including attached peripherals like the cover. 

That would be $420 million. That's about 10% of Microsoft's adjusted Windows revenue of $4.62 billion (that's adjusted downward to make up for how Microsoft accounts for upgrade sales made in previous quarters). Even if those estimates are generous and the number was lower -- say 5% -- it means that Surface was material in helping Microsoft make up for a drop in PC sales this quarter. And those estimates could very well be low, which would mean that Surface was an even bigger factor in saving the quarter.

Charles Arthur breaks down the Microsoft Q3 numbers nicely and shows that Surface saved the quarter for Microsoft. But if the consumers are not coming back combined with slow sales of Surfaces, future quarters will look different.  


Microsoft sells Mediaroom business to Ericsson

Today, Microsoft and Ericsson announced a definitive agreement for Ericsson to acquire Mediaroom, the number one IPTV platform deployed by TV operators around the world. This acquisition is mutually beneficial and strategically aligned for both parties. Ericsson will continue to invest in the growth and success of Mediaroom to the benefit of customers, employees, and the industry. It allows Microsoft to commit 100 percent of its focus on consumer TV strategy with Xbox.

We are proud of the world-class engineering and business achievements within Mediaroom. They have a rich history of driving innovation in IPTV. As early pioneers, they built the infrastructure to stream video on limited bandwidth, and today they enable multiscreen entertainment experiences for pay TV subscribers. Mediaroom has contributed to the evolution of TV and powers 22 million set-top boxes today in 11 million subscriber households.

 [Emphasis mine]


Diamonds, Economics and Culture

Great piece by Rohin Dhar at Priceonomics titled, Diamonds Are Bullshit. Rohin makes some great points regarding Diamonds as investments and why they should be avoided. 

In finance, there is concept called intrinsic value. An asset’s value is essentially driven by the (discounted) value of the future cash that asset will generate. For example, when Hertz buys a car, its value is the profit they get from renting it out and selling the car at the end of its life (the “terminal value”). For Hertz, a car is an investment. When you buy a car, unless you make money from it somehow, its value corresponds to its resale value. Since a car is a depreciating asset, the amount of value that the car loses over its lifetime is a very real expense you pay.
A diamond is a depreciating asset masquerading as an investment.
Gold and silver are commodities that can be purchased on financial markets. They can appreciate and hold value in times of inflation. You can even hoard gold under your bed and buy gold coins and bullion (albeit at a ~10% premium to market rates).
But with that caveat in mind, the market for gold is fairly liquid and gold is fungible - you can trade one large piece of gold for ten smalls ones like you can a ten dollar bill for a ten one dollar bills. These characteristics make it a feasible potential investment.
Diamonds, however, are not an investment. The market for them is neither liquid nor are they fungible.

Rohin goes on to show how historically diamonds were positioned as status symbol by the likes of De Beers which is a monopoly in the Diamonds space. The bigger the diamond, the more love you have for your partner. Through clever marketing De Beers and the likes were able to establish Diamonds as "symbols of indestructible love". Result being, today, over 80% of women in the US receive diamond rings when they get engaged.

Closing statement from Rohin sums it very well. 

"Diamonds are not actually scarce, make a terrible investment, and are purely valuable as a status symbol."

But then you go through the comments on the article and you can see what fine job Diamond marketers have done on human psyche. The engagement ring is no longer a luxury but a necessity. The engagement ring and the diamond has become symbolic with marriages/proposals. And if not diamond, what do we replace it with? Unless we have something of similar value (and which is a good investment) & significance accompanied by good marketing, we will not be able to do away with Diamonds.

In India there is a tradition of giving sweets (called Mithai in Hindi) on joyous occasions, be it marriage, your birthday or even buying a car. This has been tradition for hundreds of years. But then over the last 10 years or so, Cadbury's to start with followed by Indian brands like Parle and Britannia have made a severe dent to this tradition by replacing Mithai's with Chocolates. This again like Diamonds was driven with very clever marketing, involving some big Bollywood names like Amitabh Bachchan and driven in a very cohesive manner targeting smaller Indian festivals and then going after bigger one and then going across every joyous moments. Today it is difficult to imagine Brother giving any other gift than a chocolate during Raksha bandhan to his sister. While I won't say the Chocolate domination is complete or even close to banishing mithai's from Indian traditions, they surely have made their place in Indian hearts, especially with youngsters. 

While old customs die hard, a good substitute (aided by some intelligent marketing) can help replace market leader. 

Pandora comes to Windows Phone 8

For the last six months or so we’ve been working hard to bring Pandora to the Windows Phone 8 audience. Happy to announce the day has finally come.
While of course Pandora on Windows Phone 8 features the same listening experience you’ve come to expect from us, we really wanted to embrace the unique features of the Windows Phone 8 platform. For example, you can pin your favorite stations directly to the Start screen. Even cooler, the tiles are live and show you what’s currently playing without having to actually launch the app. If you have kids, we’ve also integrated into what Microsoft calls “Kid’s Corner” – just launch Pandora from that starting point and we’ll make sure that no explicit content plays during that session.

And they added some sweetener too, you can listen on Windows Phone 8 ad-free at no cost for the rest of 2013. 



On the eve of Samsung’s Galaxy S4 launch, Apple and its marketing chief Phil Schiller spoke with mainstream news publications to slam Android and iPhone competitors. Now, following the launch of the new Samsung device, Apple has opened up an entire new web page to tout why people have loved the iPhone for so many years and to seemingly throw some negative claims against Android and Samsung devices.

Apple has also begun emailing a version of this webpage to its own customers, something that makes this seem more defensive than offensive.



Big Data, Big Blunders

Experts who specialize in computer-driven analysis of large streams of information say too many companies throw themselves into big-data projects, only to fall into common traps and end up with nothing to show for their efforts. Some 44% of information-technology professionals surveyed by business-software firm Infochimps Inc., for example, said they had worked on big-data initiatives that got scrapped.

"Haystacks without needles" syndrome.


Living Bridges of Meghalaya

It rains a lot in Meghalaya, a state in North-eastern India, the name itself means "The Abode of Clouds" in Sanskrit. Here the bridges are not built, they are grown. The roots and vines of trees are stretched and inter-twined horizontally across streams and small rivers enough to sustain it's load and strong enough to be used as a bridge.

Xbox Execs Talk Momentum and the Future of TV

Today, there are more than 76 million Xbox 360 consoles around the world. That’s three times the number of original Xbox consoles sold. And a Kinect sensor now sits next to roughly one third of those Xbox 360 consoles; the company has sold 24 million Kinect sensors since launch.

Social has been an important part of Xbox from the beginning, and that’s true today more than ever. The Xbox LIVE community has grown to 46 million members, a 15 percent growth since last year.

2012 also marked the Xbox’s biggest year for entertainment and games usage. Users enjoyed more than 18 billion hours of entertainment in 2012, with entertainment app usage growing 57 percent year over year globally. Last year in the United States, Xbox LIVE Gold members averaged 87 hours per month on Xbox, an increase of 10 percent year over year.

That's one most undisputed success story from Microsoft right now.

Beware the Big Errors of 'Big Data'

Just like bankers who own a free option — where they make the profits and transfer losses to others – researchers have the ability to pick whatever statistics confirm their beliefs (or show good results) … and then ditch the rest.

Big-data researchers have the option to stop doing their research once they have the right result. In options language: The researcher gets the “upside” and truth gets the “downside.” It makes him antifragile, that is, capable of benefiting from complexity and uncertainty — and at the expense of others.

But beyond that, big data means anyone can find fake statistical relationships, since the spurious rises to the surface. This is because in large data sets, large deviations are vastly more attributable to variance (or noise) than to information (or signal). It’s a property of sampling: In real life there is no cherry-picking, but on the researcher’s computer, there is. Large deviations are likely to be bogus.

Fragility and Anti-fragility of 'Big Data'

Microsoft is, and deserves to be, judged by a different standard

Even at 1 million the Surface RT is  considered a dismal failure by pundits.  At the same time Google’s Nexus 4 smartphone, far cheaper (e.g. $50 with a two-year mobile plan commitment) and available at far more retail outlets than the Microsoft Surface, took a few weeks longer than the Surface to hit 1 million units.  And it is considered a runaway success!  You see the Nexus 4 is supply limited.  But wait, so is the Surface Pro and that is a “failure”.  And how about that iPhone 5 introduction?  My wife waited weeks to get her hands on an iPhone 5, because they were sold out from the moment of claimed availability.

Doesn’t it seem like Microsoft is being judged by a higher standard than the rest of the industry?  They are.  And to a surprising extent, as frustrating as it is, it is fair.  Apple has nothing to prove.  Google has nothing to prove.  Amazon has nothing to prove.  Microsoft has a lot to prove.  In the court of public opinion, or at least pundit opinion, Microsoft is expected to have big runaway success stories before it can leave its 20th century legacy behind and deserve to be uttered in the same breath with Apple, Google, and Amazon.

You have predefined yardsticks and then you have dynamic, every changing yardsticks. Microsoft - the company which many love to hate gets measured by the latter one, almost always. And talk of persistence, it still goes on and on, keeping every competitor honest.

A billion Office documents on SkyDrive

Last week Office 365 Home Premium launched and we’ve seen a lot of enthusiasm over the seamless integration of SkyDrive for saving and sharing your docs. Recently we reached a big milestone; our customers are now storing over a billion Office documents on SkyDrive! We’re really excited about the feedback we’ve seen around the new version of Office and the deep integration of SkyDrive. We’re taking it a step further today by announcing a new feature in SkyDrive and the Office Web Apps that allows a more seamless sharing and editing experience for our customers.