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Why Microsoft Is Technology’s Last Grand Strategist

2013 July 17
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Walter Isaacson’s acclaimed biography of Steve Jobs, noted that the Apple founder revolutionized no less than 7 industries and went into particular detail about how Jobs was driven by products that were “sucky.”  He would then transform the category by creating technology that was beautifully functional.

Newer tech phenoms, such as Amazon and Google, operate along similar lines.  They are product driven companies and their strategy flows from that.  They see a problem they can fix, attack it with fervor and then figure out what the business opportunity is.

Microsoft, on the other hand, has always been a strategy driven company.  Much like a chess grandmaster, it tries to see two or three moves ahead and then builds out the product portfolio to attack the market.  While it doesn’t always excel in product leadership, it has remained a top player for more than a generation.  Can it continue?

The Rise of Windows and Office

In a telling interview with the BBC, Bill Gates explained Microsoft’s success by simply noting that “most of our competitors were very poorly run.”  It’s a revealing statement that goes a long way toward accounting for the company’s amazing success with often inferior products.

The rise of Microsoft, from its early origins creating Altair BASIC to its coup in winning the contract to develop MS-DOS for the IBM PC, to its amazing success in bundling Word, Excel and PowerPoint into an Office suite, left competitors with equally good or even superior products in the dust.

Each time the company prevailed, it seemed to do so through a strategic blunder by someone else.  Digital Research was reluctance to develop its version of DOS for IBM. Then IBM allowed Microsoft to retain ownership of the operating system and Lotus was slow to develop its dominant 1-2-3 spreadsheet software for Windows.

By the mid-1990’s, Apple had fired Steve Jobs and was in deep decline, Lotus and Digital Research had been acquired by larger companies and IBM was nearly broken up before Lou Gerstner pulled off one of the greatest turnarounds in history.  Microsoft, for its part, just seem to sail through, avoiding (and sometimes setting) the traps its rivals fell into.

The Internet Tidal Wave

By 1995, Netscape’s Navigator browser led to one of the most successful IPO’s in history, nearly tripling in value on its very first day.  Microsoft, for the first time, was caught off guard.  Many firms would have denied the importance of the change, but Microsoft proved to be surprisingly nimble.

Starting with Bill Gates’ clear and prescient Internet Tidal Wave memo, the company turned on a dime.  In August, it released Windows 95, in many ways Microsoft’s most successful product launch, bundled with MSN and Internet Explorer.  Later, the .NET framework was released, completing the firm’s transition to a Internet focused company.

By the end of the decade, Microsoft was the world’s most valuable business.  However, the triumph was not without cost.  Its heavy handed conduct in the browser wars left it embroiled in a massive antitrust suit which consumed valuable management resources and left it flat footed when the next big paradigm shift occurred.

The Late Shift To Moble

At the turn of the century, Bill Gates handed over the reins to Steve Ballmer and the company continued its dominance over enterprise IT departments.  However, a storm was brewing as Steve Jobs’ vision of the personal computer as a hub for devices began to take hold.  This time, Microsoft completely missed the shift to the mobile Internet.

In a fateful 2007 interview with USA Today, Steve Ballmer said this:

There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.

With comments like that, it’s easy to see how Microsoft gained the ire of tech pundits in the mobile age.  Other efforts, like the Zune music player and the ill-conceived Windows Vista were similarly clumsy and reinforced the feeling that the company had lost its way. Microsoft, it seemed, was quickly becoming irrelevant.

Yet take a closer look and it becomes clear that Microsoft is still deeply important.  It’s often overlooked Servers and Tools division has grown into a $20 billion business and has achieved double digit growth for over a decade.  Windows 8 sold 100 million licenses in the first 6 months and Nokia’s Windows phones are doing well.  The Xbox One is getting rave reviews.

However, as usual with Microsoft, the story lies not in the products, but in the strategy. Windows 8 is not only a mobile first platform (which is why it’s gotten such poor reviews for the desktop), but ties the firm’s relatively weak mobile business to its strong productivity offering as well as to its emerging leadership as a home entertainment hub.

In effect, Microsoft is seeking to leapfrog the mobile era and go straight to the Web of Things and the cloud (for which, Windows Azure might very well be the operating system of the future).

The End of Grand Strategy

Will Microsoft prevail?  I don’t really know, but its chances look good.  It still rules the enterprise, seems to be winning the console wars and, although the mobile business remains weak, a few well placed agreements with manufacturers could change that quickly.

Still it seems that Microsoft’s way of doing business is fading fast.  While the firm was always one step ahead in the PC era, it was a fast follower in the Internet era and a laggard in the mobile era.  While it spends time strategizing, competitors create new paradigms that change the marketplace.

The new breed of tech companies seem to put little emphasis on strategy, but employ something often referred to as the hacker way.  They see a challenge they want to tackle, develop a solution and then later figure out how it all ties together.  What they lack in coherence, they gain in speed.

While old rivals such as Lotus and Netscape are long gone, new ones like Amazon, Google and Facebook are moving at blazing speed.  To compete for the future, Microsoft will have to learn to develop strategy that is less calculating and more Bayesian, less grand and more tactical.  The game of strategy is changing.

If Microsoft expects to win, it will have to prove it can learn how to play.

- Greg
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