A Tale of Two Tech Companies

9/17/2013 Portland, Oregon – Pop in your mints…

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair…”

Preamble of “Recalled to Life”, the First Installment of Charles Dickens’ 1859 novel, A Tale of Two Cities.

We’ve always liked this preamble. While the story that follows it is no slouch either, the preamble alone is worth the price of admission. In economic terms, these 60 words may be priceless, as they have played no small part in the over 200 million copies of A Tale of Two Cities that have been sold.

Today, it is our intent to become the next in a long line of writers to piggy back on Dickens’ famous preamble by way of framing our recent tablet purchase experience and extrapolating it into brief commentary on the short term fates of technology giants, a category that barely encompasses the importance of these two companies, Google and Microsoft

First, a bit of history in which we shall reveal our age.  Our first experiences with a computer came circa 1984 at the tender age of 10 when HP still had versions that relied on something of a small cassette tape to store and transport data.  These machines were quickly overcome by the likes of the Apple IIe.  Those were the days when green text on a screen was enough.

In our limited tech worldview, Apple was king until Microsoft’s Windows OS came onto our radar, followed by Word and Excel.  In retrospect, while Word Perfect and Lotus (or Quattro pro) were the word-processing and spreadsheet choices du jour, Microsoft seemed to have a knack for sitting back and getting things right, ceding the first strike advantage and using their earlier competitor’s as a prolonged market research experiment before introducing a superior solution.

While it is a slower strategy and sacrifices the opportunity to seize early adopters that become entrenched in their competitors ecosystems, it has worked in every arena where Microsoft has tried it.

Fast forward to today.  Microsoft was not even on the radar as the iPod/iPhone revolution again showed that Apple still retained its uncanny ability to be the first to market.  Apple parlayed this victory into again seizing the first strike advantage in the tablet space and sending a raft of innovations to market before their competitors could fully grasp what was occurring.

Yet as any well-trained general will tell you, having the first strike advantage and winning a war are two different things.

Roughly in November of last year, we observed that it was time to begin shorting Apple.  We were late to the call but nonetheless, it has played out.  At the time, all we could see were Apple’s shortcomings based on our purchase of an Android phone which to us seemed clearly superior and more economical than its Apple counterparts.

Over the summer, as if by accident, we stumbled upon yet another nail in Apple’s short-term coffin:  The Surface.

We attended the Microsoft store grand opening in Portland over the summer as an obligation.  However, once the hype was finished, we decided to take a stroll through to see what type of weak offering Microsoft was throwing money away at.  In our mind, Microsoft had thrown in the towel.

We walked out of the store with a Surface RT (the watered down version of Microsoft’s version of the iPad) and a completely different perspective.  The Surface did everything, and a bit more, that we had hoped the iPad would.

Microsoft had done it again, as it had in the ’80s and ’90s, while it stung to watch the masses flock to the mirage of iParadise, it bode its time and learned from the iPad’s weaknesses.

What is the iPad’s weakness?  In an attempt to generalize our thoughts on the matter, we will simply state that the iPad is for digital consumers while the Surface is for digital producers (such as ourselves).  In layman’s terms, if one needs to browse and respond to emails with text, the iPad is sufficient.  If one needs to elaborate documents, spreadsheets, and the like, the Surface is everything you had hoped the iPad would be.

The iPad is not a laptop, nor is the Surface, but the Surface is much closer.

While the Windows 8 OS still requires years of app development and a bit of training, it is a dream in the tablet environment once mastered.  It does all of the logical things that we had hoped the iPad would.  It allows you to easily toggle between open apps and, more importantly for those of us who grew up managing a Windows desktop, if sufficiently allows one to manage in this environment to feel at ease.

Beyond that, the Surface tablet keypad is superior and Skydrive (Microsoft’s response to the iCloud), is extremely intuitive and allows one to make simple edits on a browser if necessary.

Microsoft has once again shown that its strategy of biding time can pay big dividends.  While it has a long way to go to reach the penetration levels of Apple’s iEcosystem, Microsoft has quietly introduced a superior product in the tablet space, and while it is no longer time to short Apple, it may be time to once again go long Microsoft.

A final question must be addressed here.  Why has Microsoft chosen to offer a tablet when for years it offered simply software and relied on third-party hardware?

It is simple, and a fact that must not be overlooked when analyzing technology offerings.  The tablet (and smart phone), as the Internet browser once was, is now the main portal to the digital world.  Microsoft’s offering of the Surface is as important as its offering of Internet Explorer was, which is why the company is almost giving them away.

For with the Surface and Windows 8, Microsoft not only has Apple’s market share in its sights, but Google as well, and if things continue to progress along this path, Google will find that tablet producers will sidestep its gates at every opportunity.

And the time to short Google may indeed be nigh.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 17, 2013

Copper Price per Lb: $3.20
Oil Price per Barrel:  $105.76
Corn Price per Bushel:  $4.56
10 Yr US Treasury Bond:  2.84%
Mt Gox Bitcoin price in US:  $139.25
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,314
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,529
M1 Monetary Base:  $2,672,600,000,000
M2 Monetary Base:  $10,742,100,000,000