Windows 8 Faces Slow Ramp-Up, But Big Potential: Q&A with a Microsoft Distributor
In a Q&A, D&H Distributing Co-President Michael Schwab says structural factors are giving Windows 8 a slow start, but he predicts some of those same dynamics will make the new OS a huge hit in the near future.
As co-president of D&H Distributing Co., the Pennsylvania-based distributor with a base of tens of thousands of small to midsize business (SMB) resellers, Michael Schwab has exceptionally good visibility into the market dynamics affecting a number of business product sectors. In a Q&A at the D&H Nov. 7 Mid-Atlantic Fall Technology Show in Hershey, Pa., RCP Editor in Chief Scott Bekker asked Schwab about what he's seeing and expecting for a wide range of products affecting Microsoft partners. Answers have been lightly edited for clarity and length.
RCP: What are your sales expectations for Windows 8?
Schwab: Leading up to Windows 8, the dynamic that we saw in the marketplace was that consumer PCs had flatlined for two reasons. There was a lot of hype around tablets and there was anticipation of Windows 8. It seemed like the business productivity side of the house continued to flourish and do fine.
We're in our third week of Windows 8 products. It's all very positive. Everything we were getting in, particularly touch products, we're selling through immediately.
The evolution of the product, I think, is probably more interesting than even the launch -- and I say that because, over time, the solution set translates beyond consumers. Today it seems to be a consumer interface, it's a consumer dynamic and that's where I'd say 90 percent of our sales have gone so far is through a reseller to an end user, through a retail partner to an end user.
When Microsoft ends support for Windows XP, I think businesses will be looking at, "What do I do next?" And Windows will be the answer. Windows 7 users need to justify a move to Windows 8. The security might be better, the wireless might be faster. There are a couple of intuitive things, positively, about Windows 8, but there's also a learning curve for the corporation. But I think as consumers use Windows 8 on their tablets, on their phones, on their PCs at home, their consumer devices, they become self-taught. They'll like some of the features and benefits and they're going to say, "Why can't I use this in the office?" [Using] their Windows 8 devices on the corporate network gives them access to their corporate data, and it gives them the full functionality of the Office environment -- of the Microsoft environment -- that they really couldn't get with an Apple environment or an Android environment.
"[Resellers] are not heavily engaged with Windows 8 on day one."
"The evolution of [Windows 8] is probably more interesting than even the launch."
"I'm very bullish on the Ultrabook opportunity."
"I think the [Surface] will give the iPad a significant run for its money."
Michael Schwab, Co-President, D&H Distributing Co.
What's your sense of reseller's level of interest in or enthusiasm for Windows 8?
I think in a general way, from a reseller perspective that focuses on SMB end users, they're not heavily engaged with Windows 8 on day one. I say that because it's difficult for them to go into a real estate practice, a law firm, a doctor's office and talk to them about, "This is a must-have product today." It may not be as compelling from a business perspective as, let's say, when the next version of Office launches, where that might have some features and benefits and do some things that are central to what the reseller can sell as a tangible benefit to the end user. From a Windows 8 perspective, I think it's just going to take some time.
You're going to get a lot of units sold; they're going to be consumer-oriented. Over time, the consumers are going to be asking for them, which will get the resellers more engaged in reselling the Windows 8 solutions. I think the manufacturers are going to run in parallel, offering Windows 7 solutions and Windows 8 solutions at the same time.
One manufacturer of Windows RT devices is Microsoft. To start with, the company is selling them in Microsoft Stores and in pop-up stores over the holidays. Is that something you'd like to be able to offer, and are you in discussions with Microsoft about that?
There's no immediate conversation that we'd be able to offer the product in the immediate future.
From my understanding, one of the concerns in Microsoft bringing it out was that they didn't want to take away shelf space from their partners -- Toshiba, HP, Lenovo, Samsung. So that's why they didn't offer it through retail organizations, either -- they wanted to do it themselves. There's probably limited capacity in terms of how many units they could build. I like the fact that they're out there evangelizing best-in-class technology, and that it was designed in a way that's very compelling from a consumer experience.
Over time I'd envision just like they sell mice and keyboards and they sold the Zune product through us, it would make sense to take advantage of our reach into the channel, not just sell it themselves.
[Ed. note: See "Microsoft Surface Tablets To Be Sold by Third-Party Retailers."]
What's your view on how big of a product the Microsoft Surface will eventually be?
I think that platform -- a Windows RT device that's of that form factor and that leading-edge technology -- will give the iPad a significant run for its money. If I had to say, "Where would I place some bets here to grow some opportunities?" I do think that solution is very compelling for new users and consumers. I think the x86 versions of these types of platforms are more B2B opportunities than [Windows] RT solutions.
What's your outlook for Ultrabooks?
When Ultrabooks were first introduced, if you wind the clock back a little bit, the price points were high, the marketing was negligible and it was more word-of-mouth. It was sort of, show the product to get people to understand what it is and sell some units. I think in order for this to become more than a niche category some things have had to change, and I think they've changed for the better. Intel changed the definition of what qualifies as an Ultrabook -- it can have more than just an SSD [solid-state drive]; it can have a rotating hard drive because storage capacity per price point was one of the pushback factors. That's been solved.
I think the manufacturers have gotten more aggressive in hitting appropriate price points that are purchase-friendly. I'm very bullish on the Ultrabook opportunity. Intel's got a lot of energy behind it. You start to see ads, you start to see the Tier-1 OEMs push the product, and I think we'll start to see a snowball effect. Even though it's been around now for a period of time, I think we're just finally getting the momentum behind the technology to grow the business.
Do you think the Windows 8 launch is an important part of building that momentum, especially for all the touch-enabled Ultrabooks?
I do. And I'd take it one step further and say not only Ultrabooks, but there are many additional opportunities with all-in-one, large-screen touch computers. I do think the Windows 8 technology is very much integral to the success of those platforms. Windows 7 for touch was not ideal. I think Windows 8 wasn't an incremental improvement for touch -- it was a dynamic improvement.
[Ed. note: See "Will Windows 8 Bring Boom Times for Ultrabooks?"]
What are the implications for classic desktop configurations?
We see continued growth there, which is surprising. I think there's great value in that platform today. Price per whatever you would describe it -- per Intel chip, per hard drive, per memory -- is great value for a desktop. So if you're not physically moving your computer, there's no better value. They've also come out with some unique form factors, and you've probably seen them at the show where the computer is no bigger than half an eight-by-11 piece of paper and 2 inches thick, and that small brick is basically all you need.
Also, larger screens have become extremely relevant to business. People aren't having one 19-inch monitor. They've got two or three 19-inch monitors. They can run that easily off a desktop computer.
Voice was a heavy emphasis for D&H in 2011, but not so much in 2012, and it didn't rank among your fastest-growth areas list. Is that something that seemed like it was going to take off and didn't quite? Or is it growing pretty well, but not among the fastest technologies?
We are committed to voice solutions. There are actually a couple of new manufacturers I can't speak about yet until the contracts are signed. But I think you'll hear some more positive news coming out in that space for our reseller base. It was one of the technologies where the value proposition wasn't hitting the price points that allowed us to engage heavily with every one of our resellers. In other words, if you were a 100-seat end user, there were voice solutions out there that made perfect sense. You got rid of your old analog phone systems and really got a robust system. If you were a five- or 10-person user, a small business, there wasn't a great compelling offering that we could bring to market for you. I think we're going to have more of those solutions. I think it was a combination of the right products, right timing and right price points to make it hit the top of our radar for growth opportunities. So, we're in it, we see it's a great opportunity for our customers -- we just have to make sure we have the right products for them.
On servers, was Microsoft Small Business Server an important product for you, or has it been?
Yes, it has been. When the initial announcement came that Microsoft was winding down that nomenclature, we were disappointed because it was a very robust product for D&H. There were definitely some concerns. Having said that, now our Microsoft specialists have circled back. Now, with the launch, Windows Server 2012 Essentials is very compelling. It's the best migration path that we can take our customers on to give them all the benefits of a Microsoft-rich solution that does what they need that's not overwhelming from a price and a product proliferation [point of view]. I think we've got a good path now.
[Ed. note: See "On the Death of SBS: Microsoft Partners Rally from Anger to Acceptance."]
Two of the sessions at the D&H show were Lenovo and Cisco. They're both relatively new to the server market. Are those two having an effect on your mix of server sales?
Yes. I'd describe it as a "rising tide raises all boats" effect. Our two main go-to-market strategies in the server platform were a build-your-own solution with the Intel modular server and HP servers. Each was doing quite well. Lenovo decided to go after the SMB market with server solutions in a more serious way this year and really step up the offering with a competitive product. I think inherently, just through their marketing and their presence in the channel and the Lenovo reseller base, looking at server solutions for the first time from that vendor, we've seen an excitement and an invigoration where so many of our customers now are embracing servers through D&H that it's been a strong growth category for us. And Cisco, when they were first introduced, they definitely were more datacenter, higher-end, less-traditional, compete-in-the-SMB-world servers. I think today they're offering much more robust products at much more competitive price points for that opportunity. It's not that one OEM gets a sale to the detriment of the others. I think we're seeing growth from all vendors there.
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