Why Microsoft is losing the battle and the war


Microsoft have just announced their first ever quarterly loss in their corporate history, losing $492 million, albeit with a $6.2 billion write-down after its ill-fated (read: stupid) purchase of online advertising business aQuantive. That write-down is enough to get an asterisk beside this loss, although Microsoft’s ludicrously misjudged Online Services strategy meant something like this was only a matter of time – the division has been losing hundreds of millions every quarter for years. MG Siegler explains why the write-down and subsequent loss is not actually so misleading here; Siegler makes a compelling argument that “what we’re seeing in Microsoft’s numbers right now is the full-on shift of the company towards enterprise”.

Personally, I have an abiding disdain for most Microsoft products – I had to use XP for years at work and find it insufferable, while the horrendous UX design of Word is borderline abusive. But what I think is most interesting is that the sloppiness and lack of regard for the user one finds in their products is mirrored in their corporate behaviour, a boorish and arrogant demeanour that is hardly conducive to creating carefully considered software. The Vanity Fair article mentioned below details the management “stack-ranking” employee assessment system and how it disincentivises staff, and it all fits – the sort of company that thinks Office’s Ribbon is a positive innovation in user-design is exactly the sort of company that imposes ridiculous managerial bullshit guaranteed to strangle innovation and squash morale. I am just relieved that after years of successfully foisting their junky software on the world, their undeserved hegemony is finally coming to a close.

Which is all a way of introducing my article from last week on Microsoft’s lazy reliance on conventional wisdom, and the high price it is paying for it.

From The Irish Times, Monday, July 9th, 2012


Conventional wisdom in the technology industry, as with many fields, builds up over years and even decades of precedent and experience, until it becomes so ingrained that it’s almost impossible to question without looking kind of foolish. Following the conventional wisdom starts off being lucrative, and after a while it becomes a truth that is held to be self-evident and apparently incontrovertible.

But this is a turbulent time in the technology game as we move into the post-PC era, and those self-evident truths that went unquestioned for so long are beginning to look foolish in their own right. The edifice of conventional wisdom is crumbling fast, and it’s taking not just reputations but entire businesses down with it.

One of the oldest and most sacred of those pillars was the belief that Microsoft’s business model was essentially unbeatable. Bill Gates pioneered the horizontally integrated computer business, which saw the production of computers by various original equipment manufacturers, or OEMs, with license fees going to Microsoft for its Windows operating system and ubiquitous Office productivity suite. The margins in this sort of software distribution model were enormous, of course, and Microsoft ended up accruing the lion’s share of profits from the PC industry, while the manufacturers were struggling over ever-decreasing revenues as the whole business became commoditised.

The lesson that everybody took from this, of course, was that horizontal integration was the only viable approach in the computing game. Going any other route, as Apple did under Steve Jobs, was a form of corporate madness that would forever condemn your product to measly marketshare and tiny revenues. The conventional wisdom seemed unshakeable, and plenty of companies thrived by following it to the letter; plenty of analysts, meanwhile, made lucrative careers by ridiculing Jobs’s ideological zeal in retaining full control of the Mac experience.

But that pillar was left in a dusty heap with the news last month that Microsoft was going into the hardware business itself to produce its Surface tablet computer running Windows 8 – this was a seismic change of approach from the Redmond giants, and was an admission that the rules of the game they practically invented have changed dramatically in the past few years. In the post-PC era, the old tactics are no longer winning.

At the launch, Microsoft chief executive Steve Ballmer went out of his way to say how confident he was in his hardware partners, despite the fact that they were now competing with those very same hardware partners – the cognitive dissonance involved in this doublespeak was astonishing. After all, these were the hardware partners who were making dud tablet computers running Microsoft software for a decade, and now that Apple was running away with the category with the iPad, Ballmer was forced to take matters into his own hands.

The ironies here were many and unavoidable – Ballmer was the man who famously, bombastically, laughed at the iPhone before it launched five years ago, saying of Microsoft’s horizontal smartphone approach: “I like our strategy, I like it a lot.” And where once pundits used to pour scorn on Steve Jobs for adhering to a vertically integrated approach with the Mac, now the industry watchers wasted no time in pointing out that Microsoft was not only copying Apple’s products, but they were copying Apple’s entire business model while they were at it.

The criticism of Ballmer’s leadership has been growing for years now, with Microsoft squandering their lead and failing to keep pace with mobile innovation. The most damning judgment of all came in a feature by Kurt Eichenwald in this month’s Vanity Fair magazine that described Ballmer’s “astonishingly foolish management decisions” that lead to a “lost decade”, a chief executive capable only of imposing excessive bureaucracy and managerialism rather than fostering meaningful innovation at Redmond.

After so many years playing catch-up, Ballmer has had to throw out the traditional Microsoft playbook and make drastic changes. But it’s not just Microsoft that is eyeing up a vertical approach – when Google made a mad dash for Motorola last year, everyone assumed Android was going to be benefitting from a more integrated design process from now on, no matter how “open” it stays.

Which brings us to another, related pillar of conventional wisdom that is beginning to look less than secure – the notion that “open” inevitably beats “closed”. Admittedly, these terms were always sort of nebulous in practice and notoriously difficult to pin down, but it’s becoming obvious that there are inherent benefits and weaknesses in both approaches – Google’s difficulties in retaining control over, and deriving profits from, its Android platform is evidence enough of that.

But there is no hard-and-fast rule here – both RIM and Nokia tried to stay vertical and closed, and have keeled over in dramatic fashion, while Samsung is achieving amazing growth while relying on open Android. So is the future vertical and closed, horizontal and open, or kind of diagonal and permeable?

Ultimately, I suspect the only lesson to be taken from all this turbulence is that relying on the conventional wisdom, in any field or business, is a lazy and ultimately risky approach. Instead, it should be clear that challenging the prevailing wisdoms and ignoring the status quo is what real innovation relies on.

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