Has Microsoft Leapfrogged Apple?
What a difference ten years can make! Merely decade ago, we were just getting used to the idea that Apple would survive as an independent company. Now it’s the most valuable business in the world.
Microsoft, on the other hand, went from being the dominant player with monopoly power to the gang that couldn’t shoot straight. They’ve seemed to miss every major trend, stumbling, bumbling and putting out inferior products.
The funny thing is, among all the failures and screw-ups, Balmer and team seem to have finally put all the pieces together to gear up for a major resurgence. Over the next few years, it looks like Apple and Google will be the ones playing catch up. Right under our noses, Microsoft might just be pulling of one of the great turnarounds in history.
The Rise and Fall of the PC and Wintel
The 1990’s were the age of the “Wintel” duopoly. When I first started my career in the early 90’s, computers were just beginning to make their way into the workplace. There were a few PC’s scattered around the office and us younger folks would show the old-timers how to use word processing, spreadsheets and clip art.
Microsoft and Intel rose to dominance as corporations began to invest in IT and by the end of the decade there was a computer on every desk. When the internet came, Microsoft stumbled for a moment, but then developed Internet Explorer in record time, bundled it in with their Office software and hardly missed a beat.
Apple missed out and by the end of the decade was on its last legs. It was only saved, ironically, when Steve Jobs convinced Bill Gates that Apple’s failure would only add to the anti-trust problems Microsoft was having at the time and got him to invest $150 million in Apple.
Thus began the first great comeback in of the digital age. We’re about to see the second.
The Post-PC World
Microsoft, of course, is in no stretch of the imagination in the kind of shape Apple was back then. They have about $50 billion in the bank and will generate another $30 billion this year. Their operating margins are north of 30%, return on equity is an astounding 42% and they have almost no debt.
Still, Microsoft, the icon of the PC era, finds themselves in a Post-PC world and that’s been a problem. While consumers and even enterprises are snapping up smartphones and tablets, computing has become increasingly social, local and mobile.
Microsoft has remained, for the most part, tied to the desktop while Apple’s strength in smartphones and tablets has created inroads to the enterprise market. Their share of connected devices has dropped from 95% to less than 50% in just a few years.
It might seem that Microsoft has missed the boat, but I’m not so sure. In an impressive act of strategic jujitsu, they appear to have gained the upper hand in the new digital battlefield of in-home entertainment and now are in the process of putting together an ecosystem that will integrate everything into one platform.
Xbox Live and Kinect
Apple’s resurgence was led not by computers, but by consumer products. It was the iPod, after all, which was the first great product after Steve Jobs’ return and iTunes which provided the platform on which the iPhone and iPad thrived. It wasn’t just the products, but the ecosystem. The whole became vastly more than sum of the parts.
In much the same way, video games have been the key to Microsoft’s great comeback. In 2001, they launched the Xbox and shortly afterward went to market with Xbox Live, an online gaming service that allowed gamers to play top games against others in the network. The video game, in essence, became a social platform.
Since then, Xbox live has become much more than a gaming platform. While Apple and Google have been racing to create the new TV interface, Microsoft is already there. Xbox live integrates TV, Skype (which provides voice and video communication), a marketplace and just about everything else you would want a connected TV to do.
Further, the Kinect system, which allows for voice and gesture control was launched well ahead of Apple’s Siri and remains superior. In a very quiet way, Microsoft has built out the next generation computing ecosystem under the guise of a video game platform.
The problem up till now is that the Xbox ecosystem has been separate from the PC environment in which Microsoft excels and they have had no real presence in the post PC environment. That’s all about to change.
As I wrote earlier, Windows 8 is a mobile first platform, which will integrate mobile and desktop into one unified interface, something Apple has yet to achieve. They are also launching Kinect for Windows, which will be available on smartphones, tablets and PC’s. Early reviews have been overwhelmingly positive.
Will it be better than Apple? I’m not sure, but it doesn’t have to be. It just needs to be better than Google’s Android.
While iOS is available only on Apple products, every other manufacturer in the world needs an operating system. Microsoft still dominates productivity software and the potential of platform that incorporates everything into one interface is compelling.
Open Innovation and the New Web of Things
Playing well with others has always been Apple’s Achilles heel and it is here that Microsoft has a distinct advantage. Microsoft’s strength is its modular, collaborative approach. While Apple is famously prickly, Microsoft encourages third party development.
For instance, they partnered with Ford on their successful Sync platform. When hackers started fiddling with Kinect, they released a software development kit (SDK) and offered prizes for the best hacks.
Moreover, they have decades long relationships with manufacturers and are skilled collaborators. Neither Google nor Apple have been able to prove that they are. In the next era of computing, that may be the crucial skill.
The new hotbed of innovation is the Web of Things, a mash-up of the virtual and the physical. It’s unrealistic to assume that one manufacturer will adequately service smart homes, smart cars and smart retail. There will however, need to be a unified platform and it appears that Microsoft has put more of those pieces together than anyone else.
A Tale of Two Architectures
Since the beginning of the computer revolution, Microsoft and Apple have traded places as the dominant player. Apple won the 80’s, but failed in the 90’s. Microsoft dominated the 90’s, but has faltered over the last decade. Now Microsoft looks poised to take the lead again.
However, it has not been simply a rivalry between companies, but two very different approaches and philosophies. Apple has always been tightly integrated, controlling every aspect of the user experience. Microsoft has been modular, focusing on software and partnering with manufacturers to develop the end product.
Integrated architectures are superior for building something completely new, when standards are weak. Modular architectures win out when technology becomes mature and standards become more clear. It seems to me, that we are entering an era where Microsoft’s collaborative approach will be favored.
Much of this is still in the works, we’ll know if I’m right in 12-18 months.