Why Windows 8 Made Me Sell MSFT

I sang love serenades to Microsoft in the December issue, but a few weeks ago we sold our shares of Microsoft. Because we believe the stock is undervalued, that decision was not easy. What changed? A very important part of my thesis was the success of Windows 8, an operating system that Microsoft made for both PCs and tablets. When I saw Windows 8 demonstrated in early 2011, it looked like a very innovative, un-Microsoft-like product. Windows 8 was very important for Microsoft's response to Apple's iPad --- a tablet that was deservingly stealing market share from low-end laptops. Windows 8 was supposed to take Microsoft to the next level, leapfrogging Apple and Google.

A few months ago Microsoft released the public Windows 8 beta, and I tested it out. To my shock, I found it to be a very confusing product. The interface was slick and visually very appealing, but I simply could not figure out how to use it. All the experience I had accumulated using Windows over the past two decades was useless with Windows 8, and the fact that Microsoft took out the Start button did not help, either. I found myself staring at the screen helplessly, clicking the mouse on different corners, trying to discover how to do basic tasks that we normally take for granted, like starting a program or running two programs side by side. Even figuring out how to shut down the computer was an ordeal.

After a while our frustration built up to the point where I wanted to curse and scream obscenities at Microsoft and its CEO. I decided, however, to wait. Windows 8 had just been released for consumer preview; it was in beta, not a final product. I thought Microsoft could not possibly release a product that was so important to its future but so obviously confusing. To be honest, I simply could not process the situation; I thought maybe it was me; maybe I’m lacking the Windows 8 gene in our DNA. However, in May I read several professional reviews that confirmed our worst fears: the Windows 8 I had used was the product Microsoft would ship (less a few bugs). And I was not the only one with that deficient Windows 8 gene. As John Dvorak of MarketWatch put it, “The real problem is that it is both unusable and annoying. It makes your teeth itch as you keep asking, “Why are they doing this!?”

I know why. Microsoft wanted the same version of Windows to work on both a PC that is controlled with a mouse and a tablet controlled by touch. Microsoft had learned from past mistakes and had stopped trying blindly to port Windows made for PCs to tablets and mobile phones. Instead, it took the Metro interface it created for mobile phones and ported it to tablets and PCs. Though this strategy should work for tablets — after all, tablets are just supersized mobile phones — it fails miserably when you port it to PCs. But that is what Microsoft did. The touch gestures that work well and are intuitive on tablets and mobile phones fall flat when you try them on a PC with a mouse — swiping, a very natural touch gesture, is simply cumbersome with a mouse.

Microsoft’s ambition was to make tablets running Windows 8 as powerful as your average Windows PC. Tablets, to date, have been great at receiving information (reading, watching movies) but weak at creating content. When I travel I still have to bring along a laptop and a tablet. Microsoft wanted to make a tablet that was good at both receiving and creating content. This could have given Microsoft a significant leg up on the iPad, which is terrific for consuming information but still limited when it comes to productivity. I don’t have a view on how good Windows 8 is for tablets, but I think that Windows 8 for PCs turns PCs into productivity-reducing tools; and I think this unfortunate OS is going to be bad for MSFT.

http://news.yahoo.com/microsoft-reports-first-loss-public-company-200908715—finance.html?_esi=1

Microsoft reports first loss as public company

LOS ANGELES (AP) — Microsoft has posted its first quarterly loss in its 26 years as a public company as it declared a struggling online ad business a bust and prepared for one of the biggest product updates in its history.

The software company had warned two weeks ago that it would take a $6.2 billion charge in the April-June quarter because its 2007 purchase of online ad service aQuantive failed to help it compete with Google Inc. The amount reflected the bulk of the $6.3 billion it paid for aQuantive.

The purchase of aQuantive, Microsoft’s most expensive deal at the time, was supposed to help Microsoft boost its online ad business and mount a more serious challenge to Google. But the division housing aQuantive continued to post losses — totaling more than $9 billion since the company bought aQuantive, not including the charge.

By contrast, Google has widened its lead in the growing online ad market, thanks in part to its purchase of DoubleClick for $3.2 billion about eight months after Microsoft took control of aQuantive.

Google’s search engine, a major vehicle for selling ads, has remained strong, while Microsoft’s Bing search engine saw its market share drop slightly to 26 percent, from 27 percent a year ago. The Bing figures include searches through business partner Yahoo Inc., which has been using Microsoft’s search technology for nearly two years.

The aQuantive setback didn’t faze investors, who have been used to years of troubles in Microsoft’s online ad business. Investors usually focus on what lies ahead for a company instead of dwelling on past mistakes. Despite the loss, Microsoft’s stock was up 72 cents, or 2.4 percent, at $31.39 in after-hours trading following the announcement.

Microsoft’s fortunes are now tied to the Oct. 26 release of Windows 8, the most extreme redesign of the company’s flagship operating system since 1995. Windows 8 will feature a new look and boast new technology that will enable the operating system to work on touch-controlled tablet computers, as well as Microsoft’s traditional stronghold of desktop and laptop computers. In conjunction with Windows 8, Microsoft is planning to release its own tablet, the Surface.

A revamped version of another lucrative franchise, Microsoft’s Office software that bundles word processing, spreadsheet and email programs, is also in the works. Earlier this week, Microsoft previewed how the next version of Office will work on tablet computers running on Windows 8.

Microsoft, which is based in Redmond, Wash., has never previously reported a quarterly loss since the company went public in March 1986.

The $6.2 billion charge is a non-cash adjustment, which companies do when the value of their assets decline. Companies have to review their assets once a year, and the just-ended quarter is Microsoft’s final one for fiscal 2012.

With the charge, Microsoft had a $492 million loss in the fiscal fourth quarter, or 6 cents a share. That compares with earnings of $5.9 billion, or 69 cents, a year ago.

Revenue rose 4 percent to $18.06 billion.

Excluding the adjustment and the deferral of some revenue related to Windows 8, earnings came to 73 cents per share, beating the 62 cents per share expected by analysts polled by FactSet.

Although the earnings were higher than expected, analysts were looking for higher revenue at $18.15 billion.

With Windows 8-powered devices still a few months away, some prospective PC buyers have been postponing their purchases so they can buy the latest technology from Microsoft this fall. Microsoft said PC sales were flat in the just-ended quarter, and revenue in Microsoft’s Windows division has now dropped in five of the past seven quarters.

The pressure won’t be on Microsoft until Windows 8 is released in three months. Investors will then be closely watching to see if the new operating system delivers on its goal of making Microsoft a significant player in a tablet computer market dominated by Apple’s iPad, while also helping boost PC sales.

The high hopes for Windows 8 are the main reason Microsoft’s stock has climbed about 18 percent this year as of Thursday’s closing price of $30.67.

Uh, I’ve got two degrees in computer science, 40 years experience in computing and networking, and 15 years experience with PCs and Windows, and I wasn’t too much better off than that guy’s dad. Within 30 minutes of installing W8, I literally wanted to scream and throw heavy objects at my computer. Trying to use W8 CP wasn’t an academic exercise for me either. I needed to port a large amount of code to it as well as be prepared to support my customers in the future.

I finally just gave up. But I did come back a few weeks later and installed Classic Shell to restore the Start Menu, as well as inventing novel hacks to the registry that no one else had done in order to automatically skip Metro UI to go right to the real desktop on W8 Consumer Preview. (The hacks were difficult because the methods used to skip Metro UI on Developer Preview had been deliberately disabled by Microsoft.)

I predict W8 will be a bigger disaster for MS than Windows 95/98/Me and Vista combined. I can’t wait to see the new Apple ads impugning Metro UI: “If you think Vista was bad, have you tried Metro UI yet?” All they’d have to do is film a bunch of folks using Metro UI the first time and then extract a montage. It would be funnier than a barrel of monkeys and quite instructive too.

I will be buying some LEAP PUTS on MS and on PC ETFs if MS does indeed release W8 as it stands now.

I'm with the author - MS 8 is a piece of crap.

I have Win8 installed in a VM. It's a complete disaster. For example:

They took the start menu - which they already had - and removed it entirely from the desktop.
They added the intermediate "Metro" sequence of many, many start screens that you have to scroll horizontally (in an unusual direction for a PC) to find something.
That Metro Start screen contains no way to group your applications. It's all in one long list of colored boxes and uncolored text. Keep scrolling.
There is very little that you can do to make the computer your own. It comes in factory default colors which are absurdly ugly. Looks like nobody at MS has artistic talent. You can't move items around, assign icons, change colors, group objects... you either take it as is or you reject it entirely.
Metro software runs full screen. This is ridiculous on a large monitor. Some people have multiple 27" monitors.
Metro approach specifies a full-screen application. This means that you cannot have several documents open side by side as if you are actually doing any work. Obviously Metro is not intended for work. At best you can have two (2) applications side by side, Right now there are about 10 windows on my screen - some documents, this browser, and several emails open that I need.
Gestures with mouse are nearly impossible to execute. The "hot spots" require hand-to-mouse coordination that I cannot achieve on this 1920x1080 screen.
The other way to run software is by pressing the Windows key and then typing its name. I don't even remember what software is installed here, let alone what it is called! If only they had a list, perhaps organized in some way, where the installed software could be looked up and started from!
Lots of other issues.

MS is going to sell upgrades from Vista for $35. This is the cheapest MS upgrade ever. However there are some serious limitations on the hardware, so probably nobody will buy the upgrades. Usability-wise, Win8 cannot be used by anyone, period. The only exception is people who have very basic computer needs - such as all they want is to run a browser. But those people will not buy a desktop anyway.

Windows 7 is the best OS that MS produced so far. If you don't care about the latest technologies then WinXP will work for you. Win8 ... stay away. Those guys are right to sell the MS stock. It's not just the fact that Win8 will be a total loss. The worst is the fact that MS is operated by a bunch of narcissistic idiots who think that they can change the way the world works (on PCs.) A company like that is in much bigger trouble than just a failure of one product.

P.S. Their lack of wisdom does not limit itself to Windows OS. MS already hurried up and produced MS Visual Studio 2012 RC that I also have. The developers were so stupid that they picked a color scheme where you can't tell elements apart. It looks ugly as sin, and it is hard on the eyes. Those guys simply lost their mind (assuming that they had it at some point.)

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