The Witcher 3 – a review

I’ve played The Witcher 3 probably for over 60 hours now, and just finished my first play-through. Some thoughts…

From a systems/mechanics perspective, I found The Witcher 3 to not really hold any surprises:

  • Large open-world layout, supporting immense amounts of open exploration. Even with 60 hours in it, my map holds more “?” marks than explored areas. However I rarely felt the desire to explore
  • A deep questing system with a simple “mechanical” setup: explore 3 large areas of the world (with lots of optional quests per area) sequentially to uncover the next major set of main quests. The later main quests would at times take me back through these 3 areas and revisit earlier acquaintances
  • Real-time combat that’s mostly swords-based, with some defense/offense spells. The base versions of the spells (“signs”) are already learnt at game-start, as thematically you are a traveled witcher. To me the combat was the least interesting aspect of the game
  • A leveling system that mostly provides passive benefits to your character’s stats / abilities, with some limited additional active spells unlocked (twists on existing spells). Interestingly leveling is primarily through questing, as combat/exploration provides very little experience rewards
  • A crafting system that supports hunting/gathering component resources. The alchemy part of the crafting system plays a strong role in supporting the thematics, however in practice I rarely felt the need to hunt for components – I had the habit of looting pretty much everything in sight, so when I did need to craft a potion/piece of gear I usually had the ingredients (or could salvage them from dismantling items)
  • A few mini-games: a very thematic card game, horse-racing

The execution of most of the above areas are mostly just so-so (with one notable exception), and what’s worse is that there are quite a few glitches / bugs… For example in my PS4 copy, the Gwent card game tutorial repeatedly crashed for me, which made me give up on this entire mini-game altogether.

I’ve also seen quite a few reviews comment that “the combat is not Dark Souls / Bloodborne“, undoubtably with Bloodborne fresh on players’ minds – this was my impression as well. It is an unfair but relevant comparison, and to me shows the importance of focus – a game cannot be the perfect game to all players, it must choose what it focuses on excelling at.

For The Witcher 3, that focus is the storytelling (the exception I mentioned earlier). The questing system itself is wholly generic (and even cuts some corners with designs such as a notice board where you can conveniently pick up side missions). And the mechanics of the quests are not ground-breaking in any way – it’s the standard fare of “go there” / “get that item for me” / “kill someone”. But the writing quality, the sheer amount of writing, and the related production values in presenting those writing (voice-acting etc.) is simply astounding. Quests, even the smallest side-quests, will often have (surprising) consequences later on; there are always interesting plot twists, supported by a memorable ensemble cast of NPCs; and the game’s grim world-view will repeatedly show the player that the best intentions can have objectively bad results (such is the tragedy of life).

In one sense this is basic storytelling – create numerous interesting characters; plant some seeds and come back to them later (preferably in unexpected ways); have multiple narratives in parallel, creating pace and tension, etc. – but the finesse and ease at which this game ties its quests together are remarkable.

Lastly, The Witcher 3 mostly succeeds by having about a dozen characters that the player cares about, and having the player make numerous narrative decisions per character throughout the long playthrough. Some of the consequences of these choices are not apparent until the ending; in other cases, they require the player to make immediate life/death choices (forced under a timer) between characters. As the credits roll, it’s hard not to reflect on these choices and wonder what could have been (although with the power of youtube and community wikis, exhaustively exploring all the other choices is a trivial task).


Bloodborne – a short review

Bloodborne is the first Souls game I’ve played, and it represents a wholly different experience from other games I’ve played the past few years. Below I’ll summarize some quick thoughts I have after my first playthrough.

Much has been said about the game’s high difficulty, but to be honest I don’t think that’s why Bloodborne is unique. Diablo 3‘s randomly-generated elite mobs sometimes created extremely difficult ability combinations that created a lot of player frustration – these mobs were certainly hard, but the frustration came from not their random-difficulty but rather the lack of tools to deal with them. In contrast, Bloodborne is difficult because it ruthlessly punishes reckless play and mistakes, but it is also “easy” when you pick the right strategy and have honed your execution to a certain level of competency. Most of the times when I died, I only had myself to blame (“yep, got too greedy / cocky there”), but there was a minority of cases where I felt the game to be unfair (the design of certain enemies that I felt were too punishing, or when I felt I actually executed a parry but the game thinks otherwise).

The other unique thing about this game IMO is how it gives players a sense of progression. The industry convention nowadays is to track progression with leveling – again, Diablo 3 is a prime example (and executed quite well – as you level up you gained stats but also unlocked new abilities, which overall offered a “smooth” learning curve, spiced up gameplay, and provided things to look forward to), and certainly the dime-a-dozen mobile card battle games are entirely based on stats growth. Bloodborne does something very different – while there are certainly progression mechanics such as leveling up your weapons and your stats (and they matter a lot still), the real progression I felt (especially in the first 5-10 hours) was mastery of my character / weapons as well as combat tactics against specific enemies. It felt incredibly rewarding to be able to consistently clear an area where a few hours ago I was struggling to even deal with a couple of enemies – leveling up stats and weapons certainly makes this easier (and is a legitimate route to reduce the difficulty if I felt stuck on something), but the bulk of the progression came through learning and mastery. What I also liked is how the different weapons really had different personalities and facilitated a wide range of playstyles – I could cruise through a lot of the game on my trusted hunter-axe, but on another weapon (even at the same powerlevel) I felt like a completely noob.

Thirdly, I did develop a deep appreciation for Bloodborne‘s level design. It is incredibly well thought-out, and complements the gameplay well – finding and unlocking the many “shortcuts” designed in the world serves as great points to “base” (and hence helps with pacing) and gives another way of measuring progression. And the sense of connected-ness made the immersion deeper – it felt like a real world I was exploring, not a series of levels I was fighting through.

If I had any gripes about the game, I’d say that the final act of the game is not as interesting / strong as the earlier sections. I wasn’t particularly impressed with the latter stage boss fights (I thought some of the optional areas and bosses were truly spectacular, and got stuck on a few). The other annoyance is camera control – I felt it was subpar especially in tight areas (say a narrow corridor), and contributed to a lot of frustration in particular areas of the world.


To B or to C, that is the question

Jon Russel of TheNextWeb had this interesting tweet the other day:

 To paraphrase Ben Evans’ excellent post a couple of weeks ago, this is an unfair comparison, but a relevant one.

There are a couple of thoughts that I have on this. Firstly, the clichéd “necessity is the mother of invention.” Asian social media companies have generally been pioneers in the space of monetization via virtual goods, whereas Silicon Valley companies have focused more on ad-based monetization. IMO a big factor is the availability and maturity of advertising dollars – if the US does not have a thriving advertising industry and sophisticated advertisers (the blue chip companies and their global brands), Silicon Valley biz models will look very different.

Secondly, an ad-based biz model (B2B) demands a fundamentally different set of organizational structure and capabilities from a virtual goods biz model (B2C). In Silicon Valley, the former often requires an ad sales force fluent with convincing Madison Avenue ad execs to allocate client ad spend, as well as building the tools and support systems needed. In Asia, the latter model requires sophisticated retail / payments capabilities, such as a distribution network for physical gift cards that consumers can buy to convert to virtual currency (which can then be spent on virtual goods), as well as handling various online payment schemes (or building your own from scratch) and fraud, and also a customer support service that can handle literally tens of millions customers.

Another way to look at the fundamentally different capabilities required: ad-based biz model is generally about monetizing user data – user behavior / intent that advertisers value, so data aggregation / modeling / predictions would be key tech capabilities; whereas virtual goods biz model is about creating demand for content – “I want to buy that virtual rose so I can express my feelings to my loved one” – and hence requires a content pipeline as well as understanding of what types of content sells.

Thirdly, from a product perspective, “adding advertising to my free service without annoying my users (or not annoying them to the point of churning)” is a very different design goal from “providing value-added services that a (typically small) % of my users are willing to pay for”. Advertising in exchange for a free service is something that users tolerate; getting users to actually pay real cash is generally speaking much harder.

To be clear, I’m not saying that one model is better than the other, simply that two similar services (from users’ perspective) could mean fundamentally different company strategies.

I’ll end this post with another set of examples for comparison: and YY streaming. Both operate online streaming services in the video-games space. Twitch monetizes via video ads (as well as cut of premium subscription fees). YY mostly monetizes via virtual goods that viewers buy to gift streamers in the public chat feed that accompanies the stream – if that sounds bizarre, you really need to see it in action.


Video-games: the jobs to be done

I had recently ran into @asymco in a private event, and I asked him his opinions on the future of PC gaming (given the context of the decline of PC hardware sales). He responded that I should think less of devices and more of “what is the job being done?” And hence I’ll try to take a stab at “the jobs to be done” by video-games.

(A casual 5-min literature research turned up this post on Medium, which was an interesting read but not structured enough for my purposes, though there are clearly some points which will overlap.)

At a very high level, what are some of the “jobs” that people employ video-games to do? A quick list on a napkin might look this:

  1. To kill time – many mobile games’ default use case
  2. To experience a personalized narrative – anecdotally it seems that especially with female gamers, quite a lot play games primarily to experience the story. I have met many Chinese girls who recollect fondly their experiences playing Chinese RPGs such as PAL (仙剑奇侠传, which has spawned a whole TV series) 
  3. To appreciate immersive, high-fidelity audio-visuals – the arms race for better immersion; some games have such great visual design they can appreciated as art
  4. To be mentally stimulated – Sudoku / Chess
  5. To relax and be amused – escapism from real-life stress
  6. To compete – competitive multiplayer is a core feature for many games today
  7. To socialize with friends, as a group activity – getting together for Rock Band, Wii Sports, or the more “hardcore” stuff such as Call of Duty / Halo
  8. To seek expression of individuality (creativity, dexterity, etc.) – sandbox games such as Minecraft
  9. To seek peer recognition – leaderboards and ranked ladders
  10. To seek a sense of achievement – core to any “addictive” video-game are the feedback loops that make players proud of themselves
  11. To seek a specific social identity and a sense of belonging – affiliation with an online community, but also in esports the emergent signs of personal identity traditionally associated with following “real” sports

This is a very hasty list (some items share overlaps, for example the motivation behind “to compete” could be to seek a sense of achievement and recognition, but there’s also the enjoyment from the struggle of competition itself). In any case, a game would usually hit at least a couple of the above; a great game will likely cover many.


2013 Top-grossing Video-games Observations

Yesterday I tried to put together a guesstimate list of the top-grossing video-games of 2013 (in terms of player spending, not dev/publisher revenue).

To summarize, a top 10 list would look something like this (in ball-park descending order, sources are in the previous post):

  • Grand Theft Auto V – $2B
  • [EDIT3 Candy Crush Saga – $1.5B, simple estimate from their S1]
  • Puzzle & Dragons – $2B [EDIT1 – $1.4B after changing my assumption for whether their revenue was pre or after platform 30% cut]
  • Call of Duty: Ghosts – $1B
  • World of Warcraft – $1B?
  • Candy Crush Saga – $1B?
  • Clash of Clans – $1B?
  • Crossfire – $1B*
  • League of Legends – $0.6B*
  • [EDIT2 Clash of Clans – $-0.5B – revising these games’ numbers after Supercell’s revenue disclosure]
  • Fifa 14 – $0.5B
  • Pokemon X/Y – $0.5B

*Crossfire and League of Legends are Superdata Research estimates, and as I don’t know their methodology I’m unsure what adjustments need to be made from “game revenue” to “player spending”. Also the same disclaimer/disclosure as the prior post, while I work on League of Legends I’m not using any internal data and I’m not vouching for the accuracy of external research claims.

As I look at this list, some take-aways jump out:

  • From a return on investment perspective, the top-grossing mobile games are likely an order of magnitude better than other platforms – the production / marketing / operating costs behind P&D / CoC / CCS are probably a fraction of that of GTA V / CoD.
    • However, this doesn’t mean mobile games represent better ROI overall – the 3 mobile titles on this list are the extremely lucky few out of hundreds of thousands of mobile titles.
  • These 10 games represent a surprisingly wide (IMO) range of gaming experiences (genres, platforms and business models). This would actually be very interesting to probe further, in terms of asking the question of “what are the jobs being done?” by these products/services.
    • I’ll try to tackle this specifically in a future post.
  • The rise of mobile is really fast – would anyone a couple of years ago have imagined not one, but three mobile games, in a top 10 grossing list? It suggests that there may be an entirely new (and much bigger in scale) segment of gamers via mobile.
    • Would these new gamers remain “casual” gamers, or can they be introduced to the more “core” gaming experiences? (Or to flip the question around, can “core” gaming experiences be brought to mobile?) This is literally a multi-billion dollar question
  • The geographic markets behind these 10 games show interesting concentrations. GTA V / CoD / Fifa are primarily driven by western markets; P&D / Pokemon are primarily Japan; CF is mostly China; CCS / CoC may have the most global distribution.
  • Future growth potential – I think there’s an almost 100% obvious answer (with immense implications) to the question of “which types of games are likely to grow faster in future?”

What were the top-grossing video-games of 2013?

On reading some of the financials disclosed recently by games publishers, I had this question in my head: what were the top-grossing video-games of 2013? I’ll do a simple write-up here using a few public sources and some ball-park estimates.

To start off, let’s define top-grossing as measured by player spending. That is, I’m not particularly concerned with how much revenue publishers/developers took in (versus the cuts taken by the various distribution channels, or factoring in how revenue is recognized from an accounting perspective), but rather looking at how big the pie was in terms of money that players paid out-of-pocket.

As a first step, let’s look at boxed retail, which is mostly console/dedicated handheld titles:

Grand Theft Auto V was clearly the monster hit of the year, with almost 30MM units across Xbox360 and PS3 in 2013 (Take Two announced 32.5MM units shipped recently). Assuming an average retail price of $60 + tax (say, 10%), GTA V comes in at just shy of $2B of player spending. (A different cut is using Take Two’s reported earnings data, where GTA accounted for 72.2% of $2.15B from Mar-Dec 2013, which is $1.55B – which is about $50 per unit, which sounds about right for the pre-retail markup price.)

Call of Duty: Ghosts had close to 15MM units, which translates to about $1B of player spending (assuming $60+tax).

Aside from these two titles, no other title seemed to come close to $1B of player spending – Pokemon X/Y had 10MM units, but a lower retail price ($40), so it would come below $0.5B. Fifa 14 had close to 9MM units, which would be around $0.5B as well. It’s also worth noting that the top PC game at boxed retail was Starcraft 2: Heart of the Swarm, with only 1.1MM units.

Next let’s look at PC digital retail (as in, purchase once, play forever, via Steam etc.). I’m actually drawing a blank as I write this thinking of a major PC game in 2013 under the digital retail model that would come close to $0.5B or more. (Doing a quick scan on steamgraph I really struggled to find any 2013 releases that would be likely – so let’s table this for now.

Next up – subscription-based games. Or, basically, World of Warcraft. I’ll just do a quick back of the envelope exercise rather than dig through Activision earnings. It seems the last publicly announced WoW subscriber numbers were 7MM as of July 2013 – assuming $15 per month (ignoring the bulk discounts and tax, or regional pricing models in Asia – which could really change the picture but I haven’t researched this in detail) that comes out to $1.26B. So WoW is probably around the billion dollar club in terms of player spending.

Next, free-to-play games. A big disclosure/disclaimer here, I work on League of Legends in my day job, and I will not be disclosing any internal data points. Instead, I’ll only use publicly available info, such as this a publicly released research piece. (I’m not vouching for the accuracy of the report, especially any League of Legends estimates from this research vendor.) From this source, it seems there’s 2-3 online games under the free-to-play model that are in the ballpark of $0.5-1B in player spending.

Lastly (and this is what I really want to talk about), mobile games (basically iOS + Android). GungHo released their numbers recently, and Puzzle & Dragons scored huge, accounting for 91% of the $1.5B revenue. Adding back the 30% app store commission (I’m assuming their revenue numbers are net of this commission, since that’s what they get from Apple/Google), that comes out to just shy of $2B in player spending. [EDIT1: I’m now assuming that the standard revenue reporting for mobile games includes the Apple/Google 30% cut, as this was stated in the reports last year on Supercell, e.g. this post]

While we don’t have full year numbers for Clash of Clans or Candy Crush Saga, it’s not far-fetched to see them in the billion dollar club. For example, some research vendors estimate that Clash of Clans was the overall top-grossing iOS game of 2013, while Candy Crush Saga was the top-grossing Google Play game of 2013. Picturing what we know about Puzzle & Dragons, then these two titles are almost certainly billion dollar titles in terms of player spending. [EDIT2: Supercell’s 2013 revenue is $892MM, so Clash of Clans by itself may be around $500-650MM, since it is generally higher ranked than Hay Day].

[EDIT3: So King filed their IPO prospectus, and we have a lot more data on Candy Crush Saga. If we do a simple estimate and take the reported bookings contribution from CCS from Q4 2013 (78%) and apply it to the whole year revenue of $1.9B, that’s around $1.5B from CCS. And King reports gross revenue, so that’s the amount players spent.]


Mobile Card Games

(A sort of free-flow post that goes all over the place in my attempt to get back to blogging)

For the past couple of years, app stores around the world have been invaded with a range of casual card games. I’m not referring to card games of the poker / casino variety (though that’s certainly a major category revenue-wise, especially in western markets), but rather the “collectible card game” type which has taken an interesting evolution in mobile.

One of the earlier games to hit market success in this model was probably Rage of Bahamut, which still puts on a respectable showing today (I was able to quite easily find it on App Annie’s grossing charts). But since then tons of clones have leveraged the same underlying engine, some with astonishing levels of success – Puzzle & Dragons being the flag-bearer (it has a match-3 mechanic, but the meta gameplay is the same). Various big name IPs have also been leveraged, such as Marvel (Marvel Puzzle Quest) and Star Wars (with the horrendous Force Collection mobile game). In China, “I’m MT” reached massive success with a derivative IP (it’s based on a fan-art based on WoW), and since then there’s been literally hundreds of clones, many infringing on global IP franchises such as Naruto, One Piece, and League of Legends (disclosure: which I happen to work on).

Put aside the specific puzzle mechanics in Puzzle & Dragons etc. (which I argue add some real gameplay engagement but doesn’t explain the popularity of the overall genre, especially all the games with no combat mechanic at all), the basic formula of these games is the card “level-up/evolution fusion” mechanic, the randomized card purchasing via a treasure-box, and a cheap PVE questing system.

The “level-up/evolution fusion”  mechanic is essentially a convoluted card leveling system which dramatically extends the collection depth, obfuscates the collection cost, and acts as an economy drain for in-game items that players farm up – a card can be both “leveled up” by using other cards as source material as well as “evolved” (again using various items as material) to become a different card (usually a higher-tier card of the same character). So, say you have a Tier I warrior that is level 5, he can be leveled up to a max of level 30, at which point he can be evolved to a Tier II warrior that starts at level 1 (and the cycle repeats).

The card purchasing treasure-box functions to add scarcity (and therefore collection depth) via randomization. It satisfies a psychological itch very similar to gambling (and is often called a gambling mechanic). It’s also the same primary gameplay loop that players seek out when farming items in Diablo (the chance to get some really good item “drop”).

The cheap PVE questing system is exactly that – highly repetitive, low production cost PVE engagement, with various bells and whistles on top to drive engagement (for example, some levels are only open at certain times of the day or week). Players generally farm these PVE levels to gain items that help them pursue the card level-ups and evolutions.

The fact that this basic formula has demonstrated immense market success is also revealing in other ways. For example, the fact that a large number of these games are successful without any stimulating “moment-to-moment” gameplay (e.g. Puzzle & Dragons’ match-3 combat) shows that players are engaging with them in a very low-intensity fashion (not in terms of time/money commitment, but rather attention and focus). These games are catered towards capturing the popular “fragmented time” space pursued by many mobile apps. They can be great “second screen”/multi-tasking experiences, which a high intensity game cannot satisfy.

At the same time, it’s really hard to see these games as not a fad. The formula can be extremely sticky initially but once players experience fatigue there’s very little to prevent them from churning. Some games have tried differentiating with higher production value (e.g. Million Arthur, which leveraged famous anime voice-actors) and/or IP tie-ins to create that initial draw, but I’m skeptical that players will continue to enjoy products in this space after engaging deeply with one product and breaking from it.

This brings my rather unfocused post to the other elephant in the room – Blizzard’s Hearthstone. This game has all the signs of being a massive mobile card game, despite only beta-testing on PC/Mac so far. Ironically, I get this confidence from playing the Chinese rip-off of Hearthstone which Blizzard has just taken action against. It has the right type of session length, onboarding accessibility, and gameplay depth. And it leverages a very familiar IP. (I do think there’s a lesson or two Blizzard could learn from the Chinese rip-off, especially the small client-size which I do think is a big deal on mobile.)

In short – Hearthstone may be the first massively popular “hardcore” game that is truly achieves cross-platform parity between mobile and PC/console (I’m discounting ports like XCOM because the mobile experience still has some issues). As more and more games figure this out, it may incidentally accelerate the decline of PC gaming. Once hardcore gamers form the habit of gaming on mobile, it will be harder to lure them back to PC/console experiences (demanding even higher production costs etc., which may break economics). All of this is just speculation at this point, but dramatic gaming engagement shifts may be coming.


The making of Diablo

I came across this gem of a book recently via video-games industry veteran Pat Wyatt’s blog. It’s a breeze to read and I finished the main chapters in a day (I say main chapters, as the book takes cues from its subject matter and contains a ton of optional extra reading).

The book is mainly a behind-the-scenes account of how Diablo came to life. I consider Diablo to be one of the best games I’ve ever played, and it has a permanent place in my childhood. As a personal side story, it was one of the few games that I bought a legal copy of growing up in China – I pooled together 160RMB (~$20 at the exchange rate back then) with two friends and we rode our bicycles to the burgeoning Zhongguancun area (now a renowned high-tech hub) in Beijing to buy the box.

The making of Diablo has a distinct Silicon Valley feel to it – not unlike the other stories from the west coast of how iconic tech brands had very humble beginnings. While Silicon & Synapse (the start of Blizzard) and Condor (the start of Blizzard North) did not literally begin in garages, these two companies were incredibly scrappy and were often fighting to make payroll. And then there’s also the part of overnight riches (due to buy-outs) and how the spoils were shared (or not shared) with the employees.

But mostly, the book is about video-games development – an endeavor that is a mix of traditional software development and a creative effort (like writing a novel or making a film). The Diablo that players loved was a very different beast from its original design document, and that’s a good thing – the fascinating twists and turns of how the product came to be is inspiring and showcases the amazing things that can happen when a group of people share a common vision and passion.


Should Nokia have gone with Android?

Ben Thompson writing at Stratechery has a new post today on BlackBerry and Nokia. In the post he argues that both companies should have opted into Android, and that had they done so, the Android landscape could very possibly look dramatically different (with Nokia as the clear leader, and BlackBerry holding on to their enterprise segment).

Nokia’s “burning platform” decision in Feb 2011 will likely be classic tech strategy case study material (if not already). In the 2.5 years since that fateful decision, Nokia Lumia has sold a bit more than 25 million units (according to Wikipedia), with 7.4MM in Q2 2013. By comparison Apple sold 31MM iPhones in its latest quarter, so it’s fair to say that Nokia’s Windows strategy probably hasn’t been as successful as they envisioned.

Having said that, I do have some doubts over Stratechery’s assertion that Nokia could have dominated Android like Samsung is doing so today:

  • By the Feb 2011 point, Samsung had already sold 10MM Galaxy S phones (in 2010), and a few months away from launching the Galaxy SII. Nokia’s first Lumia phone would only come in Nov 2011. In short, Samsung had already found its formula in Android, while Nokia would be in discovery mode
  • Unfortunately for Nokia, the iOS/Android smartphone era is the first mobile revolution that was started in Silicon Valley, unlike previous chapters in mobile history. The US market suddenly became the world leader in mobile innovation (you can measure it by app ecosystem revenue etc.), and this is a market that Nokia had neglected for almost a decade. Trying to regain a foothold in this market, whether with Android or Windows Phone, is going to be an uphill battle
  • In the iOS / Android era, hardware is not a differentiating factor. This is why every branded Android vendor tries to tack on their own software tweaks and/or even services. Nokia’s previous success relied on high quality hardware with memorable features (a great camera, great support for music etc.), and these strengths don’t come into play if it became an Android vendor. Going with Windows was an act of differentiation – Nokia is the majority Windows vendor with 80% share
  • Unlike the other industries that Stratechery related to (PC and console), the mobile industry has a giant elephant in the room – carriers. This is why I think there is room for a 3rd (or even 4th) platform, because there will be carriers that will give it enough distribution to survive. Furthermore, for an established horizontal service (e.g. Netflix), while the introduction of a new platform means additional cost, it is also a raising the barrier to entry for its competitors (as well as improving leverage against the existing platform owners), so the big services (Netflix, Facebook) would gladly jump in bed with the new platform

Microsoft’s future

I don’t think I’ve ever written a post on Microsoft (it’s usually Apple or Google), but the past 10 days they’ve certainly been interesting to watch.

First off, Microsoft announced a major corporate restructuring and strategy update. For a company of its size, this is certainly not a trivial matter. What was interesting to me was how similar in theme the restructuring strategy had with some recent discussions on Asymco about functional vs. divisional organizations:

Horace Dediu’s core argument is that a functional organization is better at creating and responding to disruptive innovation, as opposed to a divisional organization. The divisional organization is symbolized by old Microsoft, with large business units with independent P&Ls, whereas the functional organization is best represented by Apple – there are products, but no product P&Ls, and resources are organized by functional expertise (engineering, marketing, etc.) and allocated to different products/projects based on strategic vision. With these analyses in mind, the Microsoft reorg looks promising on paper – it is meant to tear down walls internally, so that the company can reorganize itself around future growth initiatives, instead of clinging on to dying (slowly) cash-cows. Obviously, the reorg will not happen overnight, and results won’t show at least a few years down the road (if you think of initiating a new project from scratch).

The other interesting piece is Ben Evans’ blog post, The irrelevance of Microsoft. The charts are compelling, especially this one:

In classic strategy terms Microsoft is a horizontal integration player (while Apple is the typical vertical integration player). Therefore it is truly alarming (for Microsoft) to see its share of platforms drop from a monopoly status (which is the end-goal for any horizontal play, and a key criteria for generating profits for that strategy) to something similar to a vertical integration player (which can be perfectly healthy and profitable with 20% share). Given how Android has the lion’s share of that chart now, and the fact that Android is a free beast (both price and otherwise) that Google doesn’t have strong control over, it seems a renewed horizontal strategy from Microsoft would have some really steep hurdles. I wouldn’t be surprised if Microsoft goes down a more vertical path.

There are, of course, silver linings. Freed from internal pressure from other divisions, there’s no reason why Office cannot extend to both web and mobile leveraging its own network effects, and continue to be a lucrative cash-cow as the monopoly player in the productivity space. Xbox + Kinect are a strong contender for control of the living room (despite some of the initial gaffes with the Xbox One). And Windows Phone does enjoy some Machiavellian benefits as the third platform in mobile – it will continue to get support from telcos who want to limit Android/iOS.

Microsoft is diversified enough that it will have some time to figure out its relevance in the post-PC era. And even if it doesn’t, it will still be around for a while (at least in tech time – a decade in tech feels like an eternity). Let’s see how this plays out.