Tuesday, October 16, 2012

My pessimism on Microsoft

I fooled you, didn't I, with my frequent posts about how excited I am about Windows 8? I might give the impression that I stand in line for a new operating system release, have a collection of Windows Phones, one for each day of the week, and firmly believe that Microsoft can do no wrong. Well, the joke's on you. I believe Microsoft is in trouble. Others explain much more eloquently than me, so here are some pointers.

First is Casey Muratori's well-founded plea to Microsoft to open distribution of Windows apps. It's a great read both for business people and for software developers.

Second is Microsoft's pricing of the upcoming Slate tablet running Windows RT. "Microsoft Surface Pricing Goes Toe-to-Toe With Apple iPad". I believe this is a big mistake. This holiday season, would you spend the same amount of money on the latest (third generation) Apple iPad or the first-generation Microsoft Slate?

The iPad offers a gigantic collection of polished, curated, and well-known apps. It offers the integration with your other iOS devices that Mac owners have come to rely on. It offers the sexiness factor. Everybody who's anybody has one.

The Slate, meanwhile, is a first-generation device, undoubtedly with warts, with a miniscule collection of apps, and with few developers rushing to fill the app shelves. It offers integration with... your Windows 8 desktop, which neither you nor your friends have. Windows 8 or Windows RT are not sexy. Yet, anyway.

Of course, this dilemma assumes a $500 tablet is even anywhere on your horizon. There are plenty of cheaper yet quality Android-based tablets, including Google's Nexus 7 for a measly $200. And Apple is planning to release an iPad Mini priced starting at $250. Microsoft is entering the red-hot tablet market with a first-generation device, ecosystem, and demand—at the premium market leader's price point.

I would love for Microsoft to succeed in their endeavors. I appreciate and respect their technologies and innovation. But given my concerns, I am long-term pessimistic on Microsoft. With today's share price being $29.47, I bought a January put option on MSFT with the $30 strike price. This profits me if after the holiday season Microsoft's stock is below $28.37/share. (My pessimism is more long-term than January, but post-holiday season is a good checkpoint.)