In terms of valuation, Microsoft is the only company that comes close to Apple’s incredibly high valuation. The difference isn’t a breadth of products so much as the fact that Apple sells more products that people relate to than Microsoft does. In the same window that Apple launched its new and impressive iPhone 15 and iPhone 15 Pro, Microsoft just pulled support for its first iPhone competitor in nearly a decade, the first Microsoft Duo. But the announcement created the impression that Microsoft was abandoning the platform which will be problematic for Duo’s future if not the future of Surface because it speaks to commitment, and neither Apple nor Microsoft tend to stick with products that don’t perform well in the market.
Ironically, I think, especially the iPhone 15 Pro and its related launch effort showcase what Microsoft needs to do to truly compete with Apple with Surface, but Microsoft’s unwillingness to step up suggests that both Surface in general and the Duo line in particular aren’t long for this world. My personal view is that companies should either do things well or not at all. Otherwise, they’re just wasting money.
Let’s talk about why I think Surface is not long for this world.
Competing with Apple
I’ve done a lot of work over the years talking to various PC OEMs and Microsoft about how to compete with Apple and, for all of that, little real progress has been made. Apple wins because it provides a better overall experience and does a better job of assuring that experience after the sale. Apple isn’t perfect. It tends to focus excessively on revenue and profit, which leads it to make decisions that aren’t in the best interest of customers and, particularly suppliers and application vendors who Apple tends to bleed to death financially. It is also less than transparent about problems and has been accused of intentionally damaging user phones. That can damage trust, but Apple’s very good at crisis management, which limits the related image and brand damage significantly.
The elements of Apple’s success are a simple product line of relatively high quality, a dedicated store and in-person support in that store, and a demand generation budget that leads the industry. It works because that formula made Apple the most valuable company in the world. Microsoft isn’t a slacker. It’s the second most valuable company in the world, and for the last several years, the two companies have traded places a lot. In 2000, Microsoft was number one and Apple didn’t even make the top ten, which suggests Apple is advancing far more quickly in terms of valuation than Microsoft, even though Microsoft arguably has a broader product set, is much stronger in the cloud and in the enterprise, and has a significant lead in generative AI, the tech that is driving the market.
If you wanted a product that would challenge Apple, Apple’s new iPhone 15 Pro showcases what would be needed. Now, what happens when a company tries to create a competitive effort to displace Apple is that it picks and chooses from the list of what Apple provides, and much like a Triathlon athlete that decides they don’t want to swim, the result doesn’t perform well. If you aren’t willing to complete the solution, which shortly will include both the Apple Watch Ultra and the Apple Vision Pro, then don’t bother. It won’t work.
Xbox vs. Zune vs. Surface
Xbox is an example of a product that was executed well. Because Microsoft was convinced that Sony was going to go after Windows, it fully funded the Xbox effort. It took massive losses in the early years, but the result was a product that could and does compete very well with Sony. Had Microsoft continued that level of support and promotion, I believe it would be the only console gaming platform in the market at scale.
With Zune, Microsoft tried to compete with Apple on a budget. It created a compelling argument with early subscription music, the ability to play videos, and a much more robust design. But it didn’t counter Steve Jobs saying that music subscriptions were stupid, didn’t provide any video content, didn’t create an Apple music migration utility (making moving from the iPod to the Zune easy), didn’t market the robust case, and, after it improved the product, Microsoft defunded marketing, so Zune failed.
When it comes to Surface, Surface PCs have Apple-level quality and some unique capabilities like PC and tablet functionality that are unmatched by Apple. But they don’t match Apple’s marketing, so their unique advantages aren’t widely known. The Microsoft store isn’t a Surface store, showcasing a unique Microsoft problem in that Surface arguably competes with Microsoft’s OEM partners, weakening partner support. This forced the stores to also carry products from PC OEMs which weakened the Surface component and made support problematic (OEMs like to support their own products). The stores should be more closely modeled after Apple stores and be Surface-only, but that would have upset the OEMs more and created additional unintended negative consequential damages.
Microsoft’s two obvious paths to success are to eliminate Surface and focus on making the OEMs more successful, or spinning Surface out with funding so it can fully compete with Apple. Microsoft has yet to do either, but the cheapest path is to eliminate the platform and, given how it just pulled the plug on the original Duo, that is the path Microsoft seems to be heading for.
Apple has several weaknesses that could be exploited, but you must be willing to call those weaknesses out while matching Apple in the rest of its solutions. No one seems willing to do that, so what is the point of competing with Apple if you aren’t willing to step up to the competition?
Apple’s latest launch was one of the most impressive I’ve ever seen. With its Windows 95 launch and initial Xbox effort, Microsoft showcased that it can perform at Apple’s level but has subsequently chosen not to do so. Microsoft just doesn’t seem to really care anymore. Even Windows is at risk due to a very clear drop-off in support, which reminds me a lot of what happened to Internet Explorer over a decade ago.
It annoys me to no end to watch companies intentionally underperform and refuse to learn from past mistakes or past successes. Microsoft is a strong company with impressive capabilities, but it just doesn’t seem to have the will to compete with devices anymore, so why keep them? If you don’t want to play the game well, why play it? My hope is that generative AI will eventually keep companies from repetitive mistakes. My fear is that even AI won’t be able to overcome executives who fail to learn from past mistakes.